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Classlxb -.U.-ik 


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Book 


Title 


Imprint 


36 - 47372-1 


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PRICE COPTROL 


IN THE 


REPOTLIC OF COLOR!EIA 


FOREIGN E tor: AT ION BJN'J'CK 
DIVISION OF RESEARCH 
OFFICE OF PRICE ADI IITSTPATION 


A.NUARI - 19h^ 



r^' 


.) — } C' 




1 of 


7:1 




t \ > 


\ 


C\' 


r^RODUCTION 


The irifEmoranda published in the folloYd-ng pages are 
being released a.dth the conseri.! of the United States Department 
of State and the goverra.'.ent of the Republic ol Colombia in the 
hope that they y/ill prove useful to government officials in the 
Vj'estern Kemisphere interested in the problems of price control, 
particularly as they perta.in to the economics of the Latin 
iimerican Republics. The memoranda in question, addressed to 
the Colombian Linister of Finance and Public Credit, Die ^ilfonso 
Araujo, •'•ere prepared by Lac Ben h. Lenis, head of the ndnm.sory 
Lission from the Office of Price Administration to the Republic 
of Colombia in the mid-spring of 19h3^ The mission, composed of 


liessrs. Ben 


Levids and Jamc: 


Price Control Ofiico o 


R. Pelson, from the Seport-Import 


■f- 


of Price ^-i-dministration, Yias 


T/hich v-as engaged 
organization. 


at the 


the Offic 
fra 

ime in revamping its price control 


sent in rosnonss to. a rcouost fraii the rcov-.rriment of Colombia 


4 - ■ 


i.;r. Leu'is' memoranda contain a general exposition of 
the scope and objectives of a selective price control system as 
one of the several prerequisites for combating inRLation, as 
nell as the application oi direct price control techniques to 
the specific price problems of Colombia, x^articular attention 
is paid to the proper organization of a price control office, 
the selection of coTmodities for control, the acvantages and 
disadvantages of different pricing techniques, the guide-posts 
necessary for drafting price control regulations and the methods 
available for controlling the resale prices of imported [roods. 


The universally favorable rocepticn accorded, t]' 


memoranda bv all vho 


read them has led to the beliei that 


despite the delay in publication, their dissemiinetion to gov- 
ernn'.ent officials throughout the Hemisphere Yfould serve a 
useful purpose. 


L'11 liar; S. B. Lacy 

Chief, Foreign Information Branch 


Henrg.' Bcitscher 

Chief, Latin .emerican Section 




II - 




OF 


COFTEKTS 


Page 

If I Y.'ere Price Superor - I. . I 

If I iTore Price Supervisor - Supplement .... 11 

Next Steps on Price Control ~ III ........ 12 

Hodel Regulations and Sample Questions .... 33 


Next Steps on Price Control - IV . i|2 

Next Steps on Price Control - V . 1;9 


Footnotes 


68 


-L-7edy-pg. 3 o 









Forei^m. Information Branch 
Division of Research 
Office of Price Administration 
January, 19^3 


PRICE COFTROL D' THE REPUBLIC ,0F COLa.BIA 


Lla:/ If, I 9 I 43 

. R E M 0 R A N D U R 

To: - . Dr. Araujo' . . 

From; Ben 7;. Levis. 

Subject; If I Aero Price Supervisor 


■ You ’lave asked me to-'imagine myself as the Price 
Supervispr.-under.-f.he ir’ricc Control Decrc;-e issued Ray 11, 19h3? and 
to prepare a memorandum outlining, the steps .rdiich I believe should 
be taken at once by the person named to that position.. I am, there¬ 
fore VTitir:g .to you as though I vere the nev: appointee asking 3 ^our 
aoproi'a.l of’"mv'"bro.iocted nroaram. 


■ ■ . In. carrying out the duties b’f my office, particularly' 

in the first few iTscks, I propose-to maintain a careful balcsnce 
betveen speed and certainty^. I realize that the situation as re¬ 
gards exorbitant prices and ■speculation is serious and is growing ' 
'daily^ more dang.erous. Basic. conditions, public -opinion, and tlie 
prestige- of my/" of .lice all demand Lm-iediatc action, .at the same time 
these identical considerations require’that I move-■viith sureness, 
tha.t I proceed on the basis of facts rather than by/ intuition and 
■guessiTOrk, ’and that my’' several acts shall constitute consistent 
•parts of'a thought fully .developed program. Specifically^, I shall 
not publish a resolution attompting to control drug prices this 
a.ft-.'irnoon - beforO'-I. have built up my organization, developed essen- 
■tial facts, and’r'cccived’ essential advice - just because ■ I know (as 
a matt-or- of-comi^.on Jtnovl edge)'that drug prices- are much too high. 

But I can assure yagu that, if yT^ou..-approve my program, -I shall take 


action within the next t 


in day's 


that 'm.ll hold, the prices of all 


important -drugs in chock-, rill-reduce the prices of many, and t.111 









-p_ 


not -’.ffcct 'idvervsoln.’’ th(, Tcr;* nr-ccG.T.r^ 


fl o 


of frufs into the 


' ' * C/' • • t ' ^ 

cou?itr;^. I shrill ontlino th's '^ction latei; in this raei;iorah<'^'un. 

The vrork of my office is of a dual kindr ' study and 
action, ^in'"! the relative emphasis on each of these 'vill yb-Tv from 
commodity to commodity, and tjIII differ from time to time. For 
instance, I believe tliat tlie present situation in regarc' to drugs 
is sufficiently serious to ifarrant rapi'^ action based upon oply that 
minimum amount of study anc^ analysis abso"'utely required to oreclude 
serious errors in regulationc, Cnee the first action is taken^j, con¬ 
tinuous study and analysis-must be lia'-’ as a basis for re^rision and 
adantabion of action to nev. or newly discovered circumstances» On . 
the other hand, I have no present reason to believe tnat. textile 


nrices call for 


'ar].; 

stu'’ 


controlo None the less, I shall undertake at 


once a pro, ram o.; sPu'*"* and anal’-'sis of the' textile trade which vd.ll 
enable me to act sivlftly and vdth confidence if and vrhen the need 
develops. In sdnort, I propose an organization that will be coiitinu- 
ously in cenrnand of the over-all price situation, that vd-11 be versed 
in the essential facts neculiar to the production and trade in all 
imoortant groups of articles, and t?iat wdl], be nrenared to deal in 
each case by the metnod and irLun the vigor dictated by knowledge, 
understanding and -judgment. The point I want oarticularly to make 
is that there is no inconsiston'jy between research and knowledge, 
and actions I sVi^rill -clan my uersonnel and ray organization and my 
program along these lines; I pro^'^ose to act , but, even more, I 
oronose to be ready to act. 


FfkSOFIhL AID OKGKNIC;.TIGi: 


Pri ce Superviso r; I understand that, as Price Super¬ 
visor 1 am to be in complete charge of the orice control orograra, 
subject only to the over-riding authority' of the Minister of Na,tional 
Economy andi to tlie ad-'/ico of the Committee. I yronose to accept 
comnlete responsibility, but to concern myself nrimaril.y v;ith major 
problems of program and policy, and vrlth industry^ and public 
relations, 1 sliwll have D.ittle tine for details of price actions or 
for the minutiae of staffing and organization^, 

Deputy Super^m .sor; I shall vj-ant to appoint a Deputy, 
to act in ny absence, to ioliow closely the details of price actions, 
and to direct the immediate work program, appointee to tills 
position 'dll be a person in whom I have great nersonal confidence, 
since, of all the men on my staff, he wdll w'ork most closely 'with 
me in the develonmc-nt of rice control. I shall make him directly 
responsible for the field organization. 

Executive Secretary^ ; I s-iall want to appoint a m,an 
to this position who has had experience in office organization, vrho 




of '7i 









-3- 


Ig familiar with povernnent procerhirevG , and, if possible, who has 
some acquaintance thru stu^y or oxpeilence, v.d.th price control 
worlc. It will be his job to handle all matters of office '‘house¬ 
keeping”, and staff j.erconnel problems, an^ to follow tliru all 
actions being taken by the Office to be sure that call points of 
Office procedure iaave been covered, all parties notified, all 
materials mailed, etc. 


Le gal A- diaser; Since tlie ,:ork of the Office will 
affect the rights of individuals in new and strange ways and since 
the cries of ”tureaucrcacy” and "action in excess of authority" are 
bound to be raised, I should like to aT:)point an attorne^e to be 
available constantly for acH'ice on the drafting of resolutions, 
exemptions and adjustments, enforcement, etc. 


Ec onomic Ad viser (oart'-time consultant); I shall 
heave need, for the part-time ser'vlces of a professional economist, 
to advise on the over-all effects and implications.for the national 
economy of proposed actions, and to assist in the diiection of 
economic studies w'hich my Office must undertake if our work is to 
be effectively synchronized with the total private and governmental 
economyo 


Accountant (Full-time or consultant); Very soon 
after operations beg;in, I shall need the services of an ox-nerienced 
accountant who is famil iar with irr'ustry and trade accounting prac¬ 
tices in Colombia, who is s;^.Tnpathetic to the price control program, 
and wdio has some skill in devisin'^ accounting inquiries so as to 
supply the Office vlth absolutely necessary information at- the cost 
of the least possible irritation to business. 


Direc tor o f Information ; The price control program 
must be. sold to the public; public, support, including the support 
of controlle.'i industries, is an absolute pre-requisite to the suc¬ 
cess of the vj-ork,. It is true, of course, that the Office will be 
judged by the substantive character.of its performance, but it is 
equally true that, it is wiiat people thin k of the i/Tork of the Office 
that counts, and a skilled, information man can. do a very great deal 
to influence public thought. He must understand the program and 
policies of the Office, and he must, know Colombian r>eople and 
Colombian nevrspaperSo He will v:ork wdth the press, and with clubs 
and business men's organizations; he wall help to put the neces¬ 
sarily technica"’. resolutions issued by the Office into language 
that can be understood, .and wall see that siirLple explanatory 
materials are made available to tlie public. He i/fill help to plan 
public appearances, and he lall ad^dse as to the public demand for, 


1 -7..ioi’-pg. 


b of 71 









or roceotiveness to action by the Office. An unsAanpathetic public 
vd.ll kill our program; a good director of infornation ivi.ll occupy 
a key position on ray staffo 

r 

Corair iodity Price Director for ; 

1 - Food 

^ "* To^-'^ dle s and aoparel 
^ Cli. e.rai cals and Hea lth Articl es 

4 - Construction I'aterial, Tools^ 

Machinery and Parts, Consuraer Durable 
Goods and School Supplies _ 

5 - Rent als and Fuel 


I shall apooint the Directors of these five Commodity 
Price Divisions at once, and start them irar-iediatol^^ to vork along 
lines indicated ] ater in this meraorandurao A.t this ■'')oint, 1 ivant, to 
eraphasize that Tdiile I shall try to name ncn v/ho have had business 
or public exoerience and v;ho stand sufficient],y high in public 
opinion to brint some prestige to the Office, I shall not select 
raen rrhose business enoerience and connections lie in the fiej.d or 
Di’;ision in ’.daich they idll be placed in the Office. Except in rare 
in3‘&a<.nces, to name (for exaraole) a food man. to control food nrices 
would result not only in a loss of confid.ence by the nublic gener¬ 
ally but, also, in the generation of jealousies and the loss of 
confidence i^dtliin the trade itself. The men named to these 'iiej Com— 
modiiv positions vdll be dir^'ctlv resnonsiblo to me for the entire 
planning and operation of the price program within their respec&ive 
Divisions, I sliall expect to act Yerj largely (if not entirely) 
unon the basis of t’vir recommendations, under the general super¬ 
vision of my Deputy Supervisor and myself and within the limits of 
the general over-all policies which vre shall determine. The 
Commodity Price Directors ’ij'ill be resnonsible for the research and 
the industry contacts, and for the analysis and jud-pnent involved 
in reaching workable decisions. It requires men of experience and 
judgment to deal with large industries; to know when to rely upon 
voluntary action, public opinion and persuasion, and rrhen to resort 
to mandatory controls; v/hen to. compromise and when to hold fast-; 
when to be "easy" and wdien to be firm. These men, of course, vail 
not ■'.’'crk single handed. Each will be responsible for the selection, 
organization and work of his own technical research and operating 
staff. In conclusion on the subject of Commodity Price Divisions, 
permit me to insist, on the immediate establislimont of at least the 
five Disasions named. Price situations and problems are not, for 
the pumoses of price control, general and common to all industries 
and trades; they are peculiar to each industry and individual trades. 
They grow” out of characteristics and practices wliich must be 
painstakingly’’ stuc’ied and intimately knov.Ti and understood if effecti’ve 




/ of 7,. 














control is to result. Even if it is believed that in mny cases 
there is no situation calling presently for control, the investi¬ 
gator^,’’, contact and hackgro’jnd v’ork should be started at once, I 
have said ear] ier in this meraorandum that if J am to have the 
re'sponsibili'by for action I propose to place myself in readij^e^s 
to act Yfhenever action is called for; the time to get ready is now. 
You may recall, too, that in a preAdous memorandum to you, I made 
the point that "the very fact that an active readiness to under¬ 
take control is demonstrated v.lll be a poi/erful force onera'bing 
to keep nrices down and to postnone the day i-iien actual control 
becomes necessary'; the point ivill bear repetition in the oresent 
ccnnectionc I earnsst.ly hope that you wll]. aT)prove the immediate 
appoin’oinent of the- five-Commodity Price Directors and the early 
staffing of their Di\T.si,onSa- 

A De put y Su pe rvisor for each Department : I can not 
em.phasize more strongly than 1 have do'ne in my previous memorandum 
to you, the ui’gent necessity of treating the regional or field 
organization from the very beginning .as an integral mart of the 
price control Office, In line with this conviction I nronose to 
appoint a Deputy Supervisor for each Department at once and to see 
that he is supplied A.-lth the stenograpliic an ^ clerical assisuance 
necessary to discharge, the duties which I shall exuect him. very 
shortly to perform. In later months, as soon as the nolicies and 
organization of the Office are more-fully developed and settled, I 
expect to ulace in tlie Departmental offices the responsibility for 
local price adjustments-and regional or Departmental price orders, 
in thc-so cases where the^ need for action based on pecu]..ia.r local 
or regional characteristics outweighs, the dangers of local jealous¬ 
ies and discrimination. At that time, we shall ha A/e to consider the 
expansion of Departi-iental offices. Immediately, hoAvever, the 
•Departxiental Deputies- have a very important function to perform as 
my personal representatives in their respective Departments, I Ara'at 
a man of some prominence in each Department to serve as my "eyes and 
ears"; to bring-the program directly to retailers and consumei-s, ' 
a?id to exnlain it to them and to help them to realize that this is 
their program and not just an instance of "Bogota bureaucracy"; to 
anSAver questions and- distribute materials; to receive local complaints 
and petitions; to make recommendations on enforcement; to gather 
price data and information; and to keep, me constantly in touch i/ith 
local opinions and reactions. The price nro^rran, lot me say again, 
vfill he; m^de or broken in the field - not in Bogota; I have imme¬ 
diate ■’■.'ork for my field staff to do; I shoAild like to start noAY to 
insure that the field organization and the field work are developed 
fully in keeping A.dth their responsibility and importance, 

■ The Immediate Y.'ork Program . I have advanced some 
genera], ideas resnecting my conception of the nature of my office, 


i-7369-Pfa- b of 71 





-o~ 


and jay approach to its dutieasj and I have named the staff positions 
which I feel should be fille<^ at once^ and iicive ST)elled out the 
■general functions and responsibilities of each position. Assuming 
-• noviT, that the appointments liavo been made and the'positions filled^ 
it remains to acquaint you 'v-.dth the immediate pi‘Ogram of . work which 
I prooose to lay out for the- Office. I shall oubline this work 
organisationally, under the headings of (l) The Director of 
Information, (2) The Commodity Price Divisions, and (3) The Field 
Staffo ■ ' ‘ 

Th e Director of Information ; I want ny Director of 
Information to begin at once to acquaint business men and the pub¬ 
lic generally va.th the need for, and the nature of price control, 
and the general character of the -nolicies w’lich. my Office ?n.ll 
follow. This is a continuing,'-niot a one-time task, and. I Yrant him 
immediately to institute his Information campaign thru the news¬ 
papers, radio and public meetings - working thru the Deoartmental 
Deouties'to reach ever'^’" oart of the counti^.’’, I vfanb him to prepare 
press releases and addresses in simple, understandable, effective 
language which will (l) give the facts oir recent price increases and 
the facts on supplies, (2) point out and dramatize the danger to 
each in div idual and to the welfare of the natio'n ’if ^inflation is 
permitted to develop, (3) explain the background and exact purposes 
of price control, ( 4 ) outline the organization of the Office of 
Price Supervision and explain its general methods of operation and 
■program, and ( 5 ) emohasize the reasonable, yet firm character of 
the policies which we shall pursue. On this latter point I want 
the counx>iry to know t'nat this is a people's nrogram, and that we 
expect to be s^.nnpathetic to the probleriS of business men and to 
solicit their active coooeration; but that in the last analysis our 
job is to prevent unjustifiable orice increases and ’we shall be as 
firm as \;e must be to • accomplish this objective, I w-ant it knoivn, 
too, that we shall undertake to control the worst situation first, 
and then proceed in the order 'of urgency - in tlie hope that the 
dislike and fear of control which is’thus actively threatened may 
lead to voluntar^^ price decreases; • ' ■ 

There is olenty for a good Director of Information to 
do now in giving real life and.drive ta the program which I have 
outlined here 'in bare, brief.-terms. 

T he Comiripdity Price Divisions ; It is the duty- of the 
Comriodity Price Divisions''to carry, on the main substantive work of 
the Office. It was to accomplish the tasks which these Divisions 
mil perform tlnat the Office was established, and no time should be 
lost in getting the program-under w'ay, We cah identify at the out¬ 
set two principal tj^npes' of .situations' in which these Divisions mil 
operate at the present moment - those where immediate price action 
is urgently demanded, almost by commbri consent, and those vdiere 


-i--7j69-pg. 




of 71 







^ 7 - 


stiic’v, anal^.rsis and tactics of persuasion nay be more proc’uctive 
than a program of imneciiato - mandatory controls Let m.e emphasize 

tliat a2.i_ situations require stiuh'' and analysis^ but^ as I have 

stated earlier^ positive action may accompany or even precede de¬ 
tailed stady in emergency cases. As soon as my Comm.odiby Price 
Directors are appointed, I sliail require them within the first 
week to determine whether an^'’ price situations v^ithin their re¬ 
spective jurisdictions are of such character tliat control steps 
are imperative immediateli’-; and if I aporove of their recommenOa— 
tions, such steps will be taken. Por instance, I sliall expect 

the Food Directc;c to give me 'Wxthin a week the outlines either of 

a study program' or an action program on bread and the marketing of 
rice; the klachinery and Tools Director on farm implements (machetesj 
for example); the Fuels Director on coal; etc,; in each case concen¬ 
trating attention first on those goods whose prices liave occasioned 
recent public ccmmcnta 


Vkibh reference to those goods which are to be made the 
subject of immediate (and continuing; study, I shall require that 
there be instli.uted some such nrogrc.m as follows: 


1 - An immediate collection of facts from all 
governmental sources relative to prices, costs, materials, labor; 
imnorts and expor',-s, proi’uction, supilies, investments, income, 
profits, etc-, bm^ken dovrn wherever possible in terms of branches of 
the in^’ustry, geographica,! location, and individual comuanies. Ar¬ 
rangements for continuing, cooperative furnishing of such information 
to our Office, together i.lth advice and other helo from these 
agencies c 


_ 2 - Conferences with persons known to be familiar with 
the industry, in order to secure preliminary knowO.edge of trade 
channels, trade practices, important firms, iciportant industry and 
trade personalities, industry "gossip" and "atmosnlrjere", 

3 -■ Carefully planned conferences of carc-fudly 
selected representatives of the industig’’, for the purpose of explain¬ 
ing the Directors’ point of vieiw and policies; eliciting "spot" in¬ 
formation; securing industr^^ advice on problems, policies and programs^ 
and the possible naming of a cooperating'industry committee, etc. 

Great pains should be taken in rssuing invitations to such conlerences 
that true renresentation be secured in tenis of size of .firm, tjqpe of 
business done, industry "feeling" and "jealorsies", etc., It may be 
desirable to hold separate’meetings fc>r different branches or 
"interests" in the trade. Care shoul''' he taken, too, to have a defi¬ 
nite agenda and Program for the confa.rence; business men like to be 
called in as representatives by the Governnonu, but they do not like 
to snend time and money just for a "talk" and a "run around". 




Finall;''’_j I .y.'quIx^ Y.^arn a;'’;'FirecyOirs to be as definite as possible 
^,-in thei:::,.stfd--e-..ien-bs', but to avoi Sobupiilousl''' the making of any 
comr^ilbrnents on policy or pro gram'yonCe'rninc'the fulfillment of 
•Yiliich there is any reasonable dCubtj rny Office'cannot afford to 
break promises, , y' • .• ■ 


; y. 4.“ fhe deyelopment^ in the-light' of the. foregoing^ 
of accounting au'^ 3tatisti.cal,_ questionnaires which rail bring to 
our c)ffice all of the additional obtainable facts necessary to 
determine (l) Ydiether'aptiYre Control is required^ and' (2) v:hat types 
of control are feasible; and_ .requisite for the actual naming of 
maximum prices o.r maiq.:ins iny.'.-hatever detail the situation demands, 
The- Advisory services of the Economic:;!onsiiltant and the Chief 
Accountant ivil? be indispensable in this connection, as YTell .as the 
help of the Legal Adviaei* or A^ttorney, Again; v/e shall take care 
not to imoose upon the industry any greater burden of renorting 
than is absolutely required for the reaching of reasonable and 
defensible decisions, V/e shelly not requesu information duplicating 
that which already is being rcportev^ uo other governmental agencies^ 


5 *“ Regular reports from the’Departmental Directo.rs 
gi’Ting advice an ^ recommendations on thr basis of their contacts 
rPLth local conditions and. opinions. 


'6— The point particularly^ to be emu hasized is that 
the entire program outline^i in the preceding paragraphs ■ is designed 
to m.ake. the Director and hiS' staff thoroughly^ and, intimately famil¬ 
iar ’.dth every industrial fact an^ circumstance -.that’ has significance 
for successf-ul control of priceso . “ . 


' ■ ■ - • I shall take Drugs as an example of a commodity which 

is known to call for control of a more active;' immediate nature^ and, 
for illustrative purpose^ shall outline^a proposed prograpi of. the 
following Id.nd: > ■ 


1 - First, I must insist that my Drug I'rice Director 

be appointed before any significant decisions are reached or action 
takeno I need his help and adyrLce, and;as a matter of management 
principle I do not propose first to develop a program and then ask 
some one else to take resoonsibilit:’’ both for my program and for 
its operatioiic . ' . 

< • - 

2 -.'Vv’e shall request five orominent pliysicians each 

to drav.r up a., list of the 100 mqsu imT'crtant drugs and m.edicines, 
and from these lists we .shall compile a definite list of tlioss drugs 
and medicines most necesdary'for’the healtli and Y/elfare of the people 
of Golunbiac. , • 


-9- 


3 “ IVe shall request tlie I.Iinlstry of Finance to 
furnisli us^ from informtion ¥^hich (I unc’erstancO it no\; has and 
currently receives^ the landed cost of the individual drug and 
medicine items on our list^ together ndth the sources of these 
items 0 Through iry Director of Information ve shall arrange for 
the publishing of uhis list, auth wscurces and landed costs during 
the past three months, in as many newspapers tliroughout the 
country as vj-e can induce to cooperate„ Unless I am greatly mis¬ 
taken the comparison which consumers v.dll make between tyoical 
landed costs and the prices charged in their local drug stores 
viill have an imn:cdiate retar: rig effect on the prices of these 
articleso 

4 - vVe shall nut extra staff to icork at once to 
collect information on the national and imnorted drug industry and 
trade from goveriimental sources, and to devise the forms necessary 
to collect additiona.l j nfcrination from the industry itself; and 

we shall call industry and trade conferences at which we sliall 
prooose a direct control program and ask for advice and for a 
voluntary agreement not to raise any prices, and to reduce prices 
v/herever ]:ossible<, 

5 ~ shall give very, serious consideration to the 
'■freezing” in all Go].ombian stores of the retail ni’ices named on 
the so-called "Manulacturers Price List” published by manjr drug 
manufacturerso 

6 - IIq shall give serious consideration to obtaining 
an inventory of stocks in the hands of imnorters and wholesalers, 
at least, and possibly retailers, of the items on our list. This 
inventory T/d.11 t?irow light on the causes (local and national, and 
by trade branch) behind the present exorbitant rise in prices, and 
on the relation of nossible maximum prices to the supplies held by 
indi’^/idual dealerse 

7 - llhile' it may be nossible to fix soecific maximum 
prices, at each level of trade, •for certain drugs, it apxjears very 
probable-'that price control in the case o''^ tliese goods, will have to 
take the form of maximum ncrmitted margins at each level, coupled 
vdth a total over-all maximium. margin limit above manufacturer's 
selling' price or la'nded cost. Ilith this in mind, we shall start 

at once to develop the facts necessargr, and explore the alternative 
aoprcaches to control of margins in tnis industry. This'means that 
we shall proceed to collect data on the margin "experience” of 
ti^vDical groups of imuorters, ivholesalers and retailers, on the 
relative amounts of supplies coming from each source, and on the 
distrj.bution structure of the trade, Ilore snecifically, ive may 
discover that the principal source of imported drugs is one single 


1 - 


; . 


U 




of 7i 




forei;-n country - in ■'■■iiiich. case \:e may sot irnnortor margins on 
sin;:lo lande^^ costs and nerr.iit a feus excessive yains and require 
a few unrccci-ipensed losses; or we nay discover the sources to be 
evenly divided - in which case we may set miiqins on average 
lande'^- costs if the number of importing firms is small^ or on 
individual landed costs. Retail margins nay be set initial]y_, for 
example^ on renlacomsnt cost (regardless of actual cost) as of the 
effective, date of our margin resolution, and. thereafter on actual 
cost of .new 'supplies, in'''ividual:.yo It may vjell prove to be the 
case that effective mar,gin regulation idll require thau imported 
drugs be brought in on go\-'3rnm8nt account, and resold thru 
regular comercial channels on the basis of average landed cost 
to the governru-nt,■ I am mentioning these possibilities to you 


not in any attempt to foshadow.'’ the decision wlrich Me shall 
I’eachp but to indr.cato my belief tliat nrices casi bo controlled 
even in this most complicated trade, that v/e have a program 
definitely pointed to practical resiilto, and tliat ..•w'e must start 
at once to collect-^the inforLution necessarp.^ to reasoned 
conclusions. 


o - As part of any enforcement nrocedure we shall, 
of course, nroceed to the developmrnb of s system of licensing to 
accom.panp’’ cur maximum price resolution, when issued. 


Ig?' comments on control of d---Qg prices are intended 
to demonstrate, by illustrative example, tlie tgnge of action program 
■'./hich :;e are nrepared to devi,se, on short notice, in any emergenci^ 
situation. As a matter of feet there i.-ill b e few articles likely 
to be considered' for this purpose for which it i-ill he more diffi¬ 
cult than in the case of drugs, to institute a program of immediate 
action> 


The Fiel.d Staff; The first stem to be taken with 
reference to tlie bepartmenu Bepupies following their appointment is 
to bring tlien into Bogota for a two'-day group conference with me, 
m.y Commodity Price Biroctors, my Eco.nomic and Legal Advisers, and 
my Birector of Information - the program to be in charge- of my 
BePuty Buper'/isor .•'dio is to supervise the icork o 
You Y.'ill recall lhat the Bcparbrncnt Bcputies are 


tliat 


X the field staff, 
to be my represent- 


thf'ir erk is to begin as soon as they 


■atives in the field aii' 

are prepared to undertake it. , The group meeting in Bogota vull 
supply as r.iuch preparation as Me can j i.vo in advance; the rest must 
come from actual working; exnericncec From my Economic Adviser they 
are to learn the basic facts of the price and suppl.y situation and 
the philosophy of nrlce control; from my Com.nodi-Dy Price Directors 
and mo they w'ill le;arn the nature of the program and of the rolicies 
of the Cfuice; irom the Legal Adviser they Y\rill learn something of 
the technj.ques of '^uolic relations, and the nature of the informa¬ 
tion program and their ovm part therein; and from the Benuty 
Supervisor and the Executive Secretaiy/' they will learn the techniques 
of gatherini; and reporting data and information for the Central Offic 
and office organization and proGe<hire. 


■ 11 - 


O eneral ; It is to be assuined, of course, that 
wliile the above program for the operating Divisions of the Office 
is getting under 'Vv'-ay, the \v’ork of filling the less important nosi- 
tions, settling the office, printing stationary, de^'/eloping forms 
and form letters, etc. Vvd.ll also be progressing. 

At the. end of the first iveek I. pro'!"'Ose to call the 
first meeting of Advisor;^'’ Commit bee, to acquaint them v.vith the 
steps taken to date and. to seek their advice on such major ques¬ 
tions of policy as ma 3 ’‘ have arisen, I plan, until the i.'ork of 
the Office is I'ell along, to call such meetings at vveekly intervals. 

Since I shall neeci the help of the Price Judge very 
soon in connection v/ith the necessar;'’’ exarmination of business books 
and records, ma^’- I ask you to use your influence to expedite his 
appointment? 


liay 19, 19 A3 

1.1 E M 0 K A II D U I,I 

To: Dr. Araujo 

From: Ben W, Lewis 

Subject: If I V^Tero Price Supervisor - Supplement 


In ny memorandum-to 3 ^ou, dated Hay 14, l‘!'-43, under 
the above title, I neglected to outline one very important step 
Tfhich should be' taken by the Price Supervisor vithin a few da^/s 
after he assumes office. The sten has been discussed indirectly in 
the above and. other memoranda, but has not been nositively developed 
as a matter of immediate action. 

It was recommended that soon after the Directors of 
the Commodity/ Price Divisions are appointed, they should call meetings 
of representatives of the country's leading manu-facturing industries, 
for the purpose of eliciting information and advice and acquainting 
the industries with the program and policies of the Office. I 
strongly recommend that at the conclusion of each of these meetings 
there be se c ured a promise from the representatives pre se nt that 
their companies vd.ll not raise prices on any items in any amounts 
wi thout first discussing the proposed increase vdth the Price 
Supervisor or his representative , 

This tj’De of action \ms emplo^Aed very successfully'’ in 
the United States during the early days of price control. It affords 


i-VJOy-pg. l 4 of 7i 
















- 12 - ■ 


an imecliate clieek to price increasevC, even ■ be Tore there ±s time 
to studv the situation care.fnl!^ y; ani industry can not reasonably 
refuse to mal:e such a promise because, it involves the obligation 
only to' discuss; not to av'ai t peri.i jssioni As soon as facts and 
experience make further action necessary and feasible, it is easy 
to develop the oromise to discuss into an und erstandi n g or apre e ment 
not to raise nrices vTithout oermission; and finally into, a formal 
price control resolution, if conditions so dictate. 

From actual experience I can recommend this step as 
an exceli.ent devi.ce to check and retard price Increases, to develop 
sound relations. Ydth. industry, and to Y:ork gradually and effectively 
into more formal, positive control<> 


Hay 17,' 1943 


L i E M 0 R A N D U If 
To; Dr„ Araujo 

From; Ben Vh. Lewis and Jamiss R, Nelson 

Subject: Next Steps on Price Control - III 


The prese'nt memorandum, folloYYing the first two in 
this series vdiich dealt principally Yiith organization, selection of 
commodities, certain general- considerations, and the level-of prices, 
ivill be concerned vdth Pricang T echn iques,. The problem here treated 
is- not 'flow high shall the^ maximum be placed?”, but rather "What ■ 
method of -oricing s.hall be employed?”,,, hay I- note, at this noint, 
in .connection 'with our earlier memoranda .as well as with the present 
and future mcmorand.a in this series, that we are taking nairiS to 
discuss many matters which may arise in Colombiia only far in the 
future, if at all, fJe are attempting to give imjnediate help on 
your current problem, but. it is our belief that tlie- pidce inter- 
ventor, into whose hands these 'papers, Ydll presumably fal]., should 
ha.ve the benefit of as much of the total ex]jerier:ce we liave had vd.th 
price control in the United States awS. we can^ possibly convey' - as 
part of the general background of his thought and activity,. if not 
as’ an immediately determining guide for "spot” operati.6nSc 


.The principal price control m.etho.ds or techniques are: 

• I - A "Freeze” of control''.ed nrices at the levels 
existing on a certain base date- or during a cer-bairi base' periode The 
base date or period is fixed In the resoiutjon, but the resolution 
does not. set forth specific prices.. 

II - A statement in the resolution of specific named 
prices, in pesos and centavos, for the commodity or commodities 
controlled* * 


J-—7id of ’/I 













-13-‘ 


III - Formula resolutions specifvD.n^^ the absolute or 
percentajre margins or mark-ups which will be remitted above costs 
to the seller* 

Vie will discuss each of these in turn: 


‘ I - '' Treeze^^ of cont ro lled rrices as of s ome b a se date 

o r,per iod* ~ . 

A - Advantages. / 

1 - A ’’freeze" is the quickest rossible method of 
controlling' unices, since it requires no researcli or particular 
knowledge of the trade affected. General kno'G.edge as to the past 
liistoxy of the orices to be frozen^ their present level and some 
idea of tli'^ir probable future course is, however,- required. . 


2 - Asia consequence of this minimuin knovfledge 
require!.lent, the I'mp ositi on of a ’’freeze" reqTdres a relatively small 
administrative'staff; tiiis .staff may also be relatively unfamiliar 
wi-th trade pract-tces and 'customs. 


. 3 •- Sellers may take, more kindly to a "freeze" than 

to other types of price control,because,the "freeze"simply.translates 
into law the prices idnich sellers were voluntarily charging on the 
base date. Thus sellers have lessreason to argue that their prices 
are controlled, by an arbitrary, ignorant, and irresponsible bureau- 
cracy'o 


4 - If the regulated product, is extremely compli¬ 

cated, appears in munerous forms,, and ,is sold through many typ.es of 
channels and on widely varying terras.,, a "freeze." resolution may 
afford the oa’y possible serablancei .of price controls Thus, machinery 
prices may be frozen simply' because any other control method r.cquires 
endless calculations for both controller and controlled. Even uhe 
max'gin method m^ay be inapplicable to some such cases because of 
deficient cost records or widely varyi.ng margins on similar products. 
Obvious!}'-, too much sho.uld not be expeebod even of a "freeze" under 
these conditions, . . . 

5 -. The "freeze" may he given considerable 
necessary flexibility by: 

' a) Freezing prices of diffep€?nt .sellers or types of 

sellers at different.dates. Thus.importers’prices might be frozen 
a-c their level of two months ago and, retailors-’• prices at their 
level as of the present, 

b) Var^’-ing the date or period .for which all levels 
of prices are frozen. If prices wore both lov/er and more "normal" 

X 

three months or three years ago, prices may be frozen as of one of 
these periods. 


1-7369-i) 


C 


lb o.l’ '/I 





-14- 


c) Lengthening or shortening the base period to which 
the "freeze" applies. This maj’’ eliminate extreme irregularities or 
provide required price increases or decreases, 

d) Providing ■ that prices sliall be those of a specified 
day or days plus or minus an absolute or percentage amount. This 
amount rmiy be varied according to the attendant circumstances, 

e) Choosing betvreen average prices charged in the base 
period and maximum prices charged. If prices wore very irregular in 
the base period, tlie former may be preferable in spite of the diffi¬ 
cult calculations required to determine permissible prices. If 
prices were not unduly disorganized in the base oeriod, the liighest 
price charged diiring the oerio ’ may be mac^e the legal maximum, 

f) Special adjustment provisions ma;/- be inserted to 
permit price increases for sellers whose base prices xiere abnormally 
low in relation to their competitors. 

7 - Por the reasons enumerated above, the freeze, 

technique is peculiarly applicable if: 

a) Price control o-f all commo'^ities or of large groups 
of commodities must be undertaken quickly in order to head off a 
threatened general price advance, 

b-) A particular commodity shows signs of increasing 
greatly in price, and must be controlled temPora.rily while a perm.a~ 
nent regulation is being Tforked out, 

c) Sellers engage in deliberatelp- obstructionist 
policies to avoid the furnishing of necessary information, A freeze 
as of a base date when prices were loi-f vdll increase the willingness 
of those controlled to furnish information necessary to establish a 
reasonable price,. 

B -Disadvantages; 


1 - A freeze simply legalizes speculative 
excesses if prices have already risen unjustifiably. On the other 
hand, a base perioi as of a past date before great price increases 
occurred is open to the following objections: 

a)' If,-the. base date is far in the past, many buyers 
and sellers may have- no i(.3pa :as to the l.rvol of prices then prevail¬ 
ing, and their miemory lapses may lead to endless disputes which are 
incapable of satisfactory solution. 


-l-736V--[.i^. of '/j. 


-15- 


b) Enforcement is impossible if no records exist. 

It is difficrlt even if such rocorf5s are available becaiise the 
consuTning public which sl.culd be a powerful aid in enforcing nrice 
conti^ol cannot be exoe.C'A'd to remciPber the ■'rices that existed at 
some remote ixast date on individ'oal articles in in(iividu^ll stores; 
and the p'ubllo can not be expected to •understand or to appraise 
the merchants' records even if he j s quite willing to show them upon 
requesto 


c) Costs m.ay have risen fr^^atlv since the base date. 
These increases may be partially balanced by the operation of the 
freeze itselfj because this device I'ri.ll fiequently lower costs to 
the seller^ as well as the j'rices to the buyer. But cost increases 
on imports probably can not be avoided; and domestic manufacturers 
and farmers are not likely to benefit from cost reductions on their 
pi’oducts^ The whole weight of the lowered price is therefore likel;-’’ 
to fall on them unless the cost to t?iem of all the things the^/ buy 
is simultarieously reducea in line with the reduction in the nrices 
of the tilings they sello 


2 - Regardless of the base date chosen for the 
freezej present or past; time-lags create difficulties. Thus^ for 
example; a retailer who has folloi;ed the practice of selling goods 
at a certain percentage over tlie actual price he has paid for them 
Yv'ill find; followd.ng a freeze impose^ at a time of rising prices; 
that his frozen selling price no longer reflects hiis normal nrofit 
margin; indeed, continuec lavd’ul sales may be possible only at an 
out-of-pocket loss. His frozen costs vdll, of ccu.rse; be mhose 
prevailin{_ at the time of the freeze rather than the earlier loiver 
costs on which his now frozen selling prices were calculated. It is 
difficult; if not impossible; to find any single freeze date or 
period which is free from this oifficuluv and ivliich. at the same time, 
is S'uitable on other counts. 

The problem can bo -nartly solved by introducing 
time-lags into the freeze itself. Thus 'bhe importer's price night 
be frozen as of December 1; 1942; the Tviiolosalor‘ s as of February 1, 
1943, and tlie retailer's as of April 1; 1943o B'ut determination 
of the proper turnover period for each level of trade req-jires 
elaborate investigation and is productive of endless controversy, 
and therefore tends to n'ullify the freeze met’nod's advantage of 
simplicity. Furthermore, the imnort trade in particular has been 
so dependent unon restricted and intermittent boat arrivals and 
upon over'baxed port and inland transportation facilities that a 
normal "lag'' may v'ell have no present meaning a 

3 - Any freeze penalizes the public-spirited 
business man who has refrained from raising his nrices "■'Alth the 
market", and rewards the speculator, wh.o, at the tine of the freeze 
is charging prices so high that liis goods are being kept from actual 
sale', ViFiile a freeze as of some remote east (^ato miglit minimize 
this difficulty, it would for other reasons be entirely unfeasible. 


1-7369-,.g. 


7j. 


-16- 


Such a sit'jaticn is afiminisirativaiy as irell as 
social] 3 ^ undesnrahlle^- sioca it is boi.ind tc 'produca strained relations 
betvreen the intcrvcn'Dor end those business cien v.'ho v:oijld ordinarily 
be most coo'oarative, Finally^ it may aj.so divert supplies largely’' 
if not entirely to i-he highest-priced sellers, because tliey be 
the only ones i.’-ho can afford to bu^' theirio Thus a freeze is likely 
to cause actual nr ices to advance to the level b'^ing charged by 
the liighest-priced seller on the freeze datee 


4 " The ultimate li'ver is the l^est enforcement 
agent for any price control program^ if he tames the program seriously 
and honestly tries to cooperate, A freeze confronts him rdth different 
prices at different stores,, and gives him almost no o'nnortunity to 
check the legal!t^r of tlie various prj.ces charged<, It is true that a 
freeze at least permits the biyrer to know that once the seller has 
esuabl.ishen his nrice^ rhis price must rerfiain constants Further^ a 
freeze as of the nresent ov* some recent date peimios msr^'' buyers no 
judge 5 , witiiln limits„ the legality of the seller‘s nrico. But on 

the rdioie^ thn freeze method does not facilitate buyer enforcemento 

5 - Both the freeze method and tlie method of 
naming snecific prices ■^ail to nro’'7ide an automatic method for the 
determination of the prices of now ‘oroducts. The freeze method has 
a further disadvantage in this resnecjt - in the ver^’" cormon case of 
a new selleiy dealing in nroducts he di^' n^t offer for sale during 
the base peilod, no nricos are automatically^ established by'’ the 
method.. This problem can be attacked by’’ ore scribing that he use 
the price of tlie '’most nearly comparable'' article ho sells, or the 
price charged for the same article by the "most closely comnetitive" 
seller, but the obvious difficulty o.f determining and checking 
prices by this method constitutes a very' ser-Lous limitation. The 
experience' with, this device under the general price freeze in the 
United States is not ( ncouragingo * 


6 - Freezes may^' cs’bablish rrlativelyr high prices 
in certain geogra'ichical areas "^ue to changes in oroduction, trans¬ 
portation, or demand corr-itions since the base dote. If the 
freeze is not altered, supplies will gravitate to the highest-priced 
market. If both trade and transnortatidn irerc disorganized in the 
base period, or are changing constanbly and unpredictably, the 
freeze method becomes hopeless, Tliis oroblem, it may'' bo nointed 
out, is extremely difficult to handle regar-dless of the ty.rpe of 
price control employedo 

C - Problems; 

• • . 1 - A single seller raayr have i.ddely/ differing 

prices for the same product, depending on his classification of^ 
various buy'-ers, A freeze regulation may fit tills case' by providing 
that the maximum price shall be the highest urlce charged' during 
the case perion to any.'' buy^er of the came class. Lacl<ing informauion 
about the trade, however, the interventor may be unable to check 


x- 


7.;o9-p.,o xV 


o 


•f' 


7x 


-17- 


illef^al ■'irioes or to deter’.,lira exactly v/liat the maximum price should 
be in particular casesJsually a satisfactci'y maximum price can be 
finallj^ determined^ but tha i.'acessary investi;^ation m.a.y require much 
miore suaff time than tlie interventor can afford to employ for this 
purpose 0 


2 ~ Frequently the seller made no sales of the 
commodity during the base period. In this case^ his ^^Fce 

may be taken as a base unless this ofierinc price was o],early de¬ 
signed to drive purchasers avra^q as part of a scheme of speculation. 


3 - Gomz'iodities ordinaril y m.arksted in only nart 
of the year may ]mve no representative ririne during the base period^ 
or the price maj^ fail to reflect normal yearly fluctuations. This 
problem m.ay be met by going back to fhe last renresentative sales 
neriod and using it as a bise^ and allowing the addition of specified 
carrying charges if this seems necessar^Co 

4 ~ Since the freeze results in a definite 
maximum price for each particular seii^e.r-'s transactions in the article 
controiled_, the buyer of a business may have no maxima* The resolu¬ 
tion may provide, hou’-ever^ that the buyer of a business shall inherit 
the frozen prices of the vendor. 

5 - Tax changes may alter the ;;hole market 
position after the imposition of a freeze. To avoid confusion and 
nossible h.ardship_, a freeze resolution should state I'hich present 
taxes are included in the frozen price, and whicli future taxes or 
increases of present taxes may, and may not, be added to maximum 
prices. 

This problem, incidental] y^ also arises in 
connection with specific prices<, 


^^ tTic named p rj c es : 


A 


Advantages; 


1 - Specific nam.ed prices constitute an 
excellent method for winning pub] ic support and facilitating enforce¬ 
ment both by government agents and t}ie public, hveryone knows, or 
has an opportunity to know the exact maximum lawful price for ever;;.^ 
article included in the resolution. The specific price method pre¬ 
vents confusing and apparently random price fluctuations and guaran¬ 
tees that the .same product will be sold at different stores at 
prices T/.diich are either identical or graduated on some consistent 
basis. ■ 


2 - The ST^ecij'ic price .furnishes a known fact 
as a point of departure for considering price adjustments. A freeze 
method gives no strong reason for raising prices if costs increase, 
because the prices laay have been frozen at too liigh a level in the 
first place. A specific price permits comparison both of costs and 
cost increases, .with a IrnoT/n an-’ compiirable quantity. 

;.-73bv-jjg. ^ J of 71 




-IC- 


3 “ In coniG cases, manufacturers or trailers vjlll 
have staiv'^arrl list nrice Docks y:!d ch have aluays been recof;;nized in 
tne trade as ^i/itig the rroper sales prr’ces for the goods included. 

If investigation establisnes that these stcondard list prices are 
reasonable, tiir-ir incorporation in a maxiiTiUm price resolution is 
eictremelp sir.iple - sinnler, in fact, than framing a freeze regulation, 
I'lirt^ierrfiorej tnis rxev.ho^l unlike a freeze, doss not involve the in- 
terventor in the tasl: of makinr corrections for individual deviations 
from 'hiormal” prices due to soeoulation or '’s’^ecial bargain” sales 
during a base period, kanv manufacturers' or traders' nrice lists 
are in the possession of most retailers already, thus facilitating a 
rapid imposition of control. Of course, the list price may not be 
the best possible p:r.cec In particular, it may be too high. But 
this possibility can be investigated, and m.axiinujQ price changed, if 
such action is indicatedo 


In markets for many nrodner-s 


especially 


agricultural i^roducts - freezes may perpetbate every speculative 
excess, and margin control can net be employed because no ascer¬ 


tainable costs exist to 


vhich a margin may be added. 


Specific prices 


are therefore the onD.y possible solution, even though the specific 
nrices named in the resolution may, to some extent, be arbitraryo 


5 - Products of standard grade, easily measured 
on a rreight, length, or volume basis, are particularlj'' ssited to 
specific price control. This is especially'' true if the products 
are sold in large volume, and if each seller trades in a fairly 
restricted line, Irmvertant orodbicts justify carefr.l market study 
and prompt adjustment in price if these become necessary and hence, 
in tlnese cases the rigidi'zy of the f'xxed nrice method can be over¬ 
come. vith no greater expenditure of tine and effort than vould 
necessarily be employed in any evrnt, ani under any other methodo 


B - Disadvantages; 


Specific nrices share v:ith freezes a 


lack 


of flexibility if costs change markedly afuer the reg-’l'^ation is 
first brought out., A snecific nrice may be changed more readily'- and 
more systembically than a freeze, but both involve tiir^e-consuming 
investigation as a preliminary to a'kjustmentc. Imports, in particu¬ 
lar, m.ay require a more nearly automatic method than tlie naming of 
snecific prices. Their prices are ofbt'n uncontrolled ab uhe source, 
and specific Colombian s 
raav ruin imnorters or cut o 


.-^'-llin 


f pi’ices unadjustC'^ for long periods, 
ff essential supplies. 


2 - Som.e products are sold in so many'" forms and 
under so mny’’ different conditions that listing all possible prices 
uould result in a price catalog of unusable dimensions. If each 
separate tyqoe is sold in small quantities, efforts s-nent in setting 
prices on all of them ivou’ d be largely,'’ wasted«. 


x-7j)6D-pg. ~i oi' 71 


- 19 - 


3 - 3prcific pricec require more knoiTledge of 
the trade - excep':, vuien uhej^ are based on price bocks - than the 
knoivleoge required to issue an accep'^able freeze or margin regu¬ 
lation., Ihep a].so requi.re 0 ci,rci'v 2 . conuinuing invectigauion and as 
a result^ a oizeacl.e sta.ffj Tiie practical course ruay be to start 


Tvith so.mie other price control method^ and uc introduce specific 
prices as t’ne staff gains in size, organization^ and experience. 


4 - Some distributors, or some trades, may 
habitually think in terms of margins rather tlian in terms of spe¬ 
cific se.Lling prices« This disadvanbage should not be crucial if 
the specific price regu3..ation is carefully’’ dravni and explained, and 
if sellers do not have to bear the entire brunt of cost increases. 


5 - Unless relationships between specific prices 
are caref'ully establishfsd, G'V£’.sion by sliifting to the most profit¬ 
able product LS likely, and may, therefore, make necessary the 
adopt'.'on of direct restrictions against such shifting, 'Specific 
price regulations shoulr^ also contain very exact definitions of 
•che product regulated, and f'ull provisions for price premiums 
and discounts if the product differs from sta'xidard. 


III - ilir'',in or m.ark-up control 

_______i_i___ ^ _____ 


Since we have noticed a veip-" considerable dispo¬ 
sition on the pare of those authorities "v^iuh nrhom vre have talked 
in Colombia to support margin control, at least in the early 
stages of price regulation \ie shall devote more space to this than 
to tho other methons« 


By ''Kargin control” is meant any of the follomng; 

a) AlloTdng tho seller liis purchase price, either 
mth or rdthout qualification as to how this shall be calculated, 
plus a specific absolute amount stated in pesos and centavos, 

b) Allova ng tho seller his purchase price, as in 
(a) above, plus a specified percentage. This may be stated either 
in the form of a specific percentage to be added to this purchase 
price, or a division factor of less than unity by vdiich this pur¬ 
chase price is to be divided, or a m'ultiplication factor of 
greater than unity by which tliis purchase price is to be m\.ilti- 
pliei. The form of calculation chosen should depend upon which 
device is simplest for the seller to employ and w^hich most nearl3^ 
approaches his customary?- practice. It has no further significance. 


] -'■/ < 


^DV-pg 


of 7.1 




- 20 - 


c) Specifying ceri-ain elements of cost, with or 
vdthoTit further insti'iict^ ons as to the met^'.od by which, and the 
rates at vj-hich those elements are to be calcifLated, and provid¬ 
ing for the addition of a margin to these costs. This method is 
particularly anplicable to manuf-acturing enterprises or other 
concerns which inc'.rr considerable costs of a standardized charac¬ 
ter and keep adequate and systemiatic records of their cost commit¬ 
ments e It has also been used in Uni'^ed States regulations in 
dealing idth import nrices affected by fluctuations in war risk 
insurance and ocean freight rates: many regulations provide that 
these costs mav be added„ 


A - Advantages 


1 - If cost orices to the controlled seller can 
hot be or a^e not being controlled^ nnr{:in control or any of the 
tjnoes listc'-' above permits automatic p:fice adjustments as costs of 
acquisition (or fabrication) change, thereby eliminating both the 
frictions and dela^z-s which special individual adjustments would re¬ 
quire, and the ps 7 /chologicai dj sadvantage of having nrice control 
apparently in fiill retreat as soon as it begins operationo 


2 - If the trice controlled articles traded in 
by any one controlled seller are ver^^ numerous, margin control is 
to be preferred to an attempt to establisli specific named prices 
for each article which would involve the ccntrol organization in 
the arduous and more or less irrelev'ant task of ascertaining a 
multitude of individual prices and translating' then into tlie prices 
desired, and result in a orice document of frightening size« 

3 - many prices are customarily stated as f,o*b, 
or foaoS, foreign source, Coioff or c, and f, port of entry, or 
ff.Oobo domest 'c manufacturing establishmient or other source q 
F reight to the buyer's warehouse or store varies with the location 
of' the buyer; if transportation conditions are abnormal, warehous¬ 
ing may introduce a further cost eloment wnich can not be reduced 
to any definite mone^/- value. Therefore, even if tne price at the 
source of' supply can be and is stated as a certain fixed amount, 
convenience may dictate the use of margins to control the prices 

of resellers who are geographically'' or temporarily removed from 
the original sellerc 

4 - Im.-oorters, wholesalers, and retailers may be 
more likely to think in terms of margins between" buying and selling 
cost than in terms of the absolute levels of either buynlng or sell¬ 
ing prices. Thus a measure specifying nonral margins may be more 
in accord urith their customary thinking and hence receive their 
more whole-hearted suppor'b.-, 


i=:73b9-pg. <:3 of 7i 


- 21 - 


5 - I-iargin control is relatively easy for the 
price interventor bo aoply. Vihile it involves ?iim in all of the 
investigation and analysis necessary to determine the size of the 
margin to be allo^fed, lie is relieved of bhe vast calculations 
requj.red in the naming of specific prices, 

B ~ Disadvantages, 

1 - Administrative convenience frequently 
dictates the imposition of price control at certain strategic point 
or leve3.s in the economic system, Thus^ in the Uni.ted States, prices 
of metalliferous ores are in general uncontrolled because they are 
pi’oduced under differing conditions by a host of mining companies 
of all sizes and financial conditions; prices of the metals produced 
from these ores are controlled by specific prices, hoTrever, and 
hence, rrhile it is neces 3 ar 3 ^ to exercise direct control over only a 
fev large refiners, indirect conxrol over ore prices follows auto¬ 
matically! refiners, forced to sell at a specific price, can not 
afford to bi(^ up the prices of ores too high. This conti'ol method 
has also been used for mai' 13 ^ farm products. Although admittedly it 
has been rather unsuccessful as a device for holding down farm 
prices, it has had the advantage of avoi(3ing the extrem-e administra¬ 
tive burden of attempting to police the sales of millions of farm 
producers, 


Such concentration on the level most easily-' controlD.ed, 
Yrhether because a relatively few large nroducers dominate the industrj^ 
at tliis level, because the nroduct whose price is being established 
is most easil^’' identifiable here, or for anv other reason, is imnos- 
sible on a margin basis, unless precautionary/ clauses are added. 

United States regulations which control only/ one or a fexf of the 
levels of production and distribution by the margin m.ethod have also 
contained statements that raw material or other costs must be cal¬ 
culated as of a certain base date or mjay/' not be reflected in price 
increases bey^ond a certain named amount. Even wltli these qualifi¬ 
cations, such regulations have not been narticularly successful - 
partly, of course, because of the basic failure to control cost 
prices, but partly also because the margin method is not well suited 
to this tyq:)© of strategic control. 

2 - More generally, the margin method gives- no 
incentive for the seller to exercise care in his purchases. If the 
maintenance of siu’^ply is extremely'- imiportant, this is not crucial, 
but if some supply can be foregone or if producers are bidding 
against each other for a supply/ which mil not increase as their 
price offers rise, margin control results in unnecessarily high 
prices. This is likely to be true even if margins are initially 


i-7,Kj)i-pg. --4-of 71 


-22- 


set at an undul^^ lew levels it ?rlll be especially the case if 
margins are set on a percentage basis - hero the producer or 
distributor may have an actual financial incentive to increase 
his costs v^astefullye 


The.s argument applies wiuh particular force to 
Colombian imports from the Unitei States. Here suoplies are limited 
both by Y.'ar Production Board allocations and, more parbicularly by 
an extreme scarcity of shipping space. Furthermore^ prices are 
controlled at the source and coeperauion to establish snecific ex¬ 
port prices for important comiaodities is available^ Therefore, 
competitive bidding for, goods to be exported from the United States 
can result in no more supplies| it simply makes United States export 
price control more difficult. Tne possibility of establishing spe¬ 
cific maximum prices for important standardized products f.o,b. 
United Si^ates supplier, or f„a... s.- United States oort should be 
considered by the Colombian Price Interventor„ 


3 - iiargin control may result in the appearance 
of new and unnecessaiy transactions in the distribution system, 
either because existing distributors create •’■'dummy'’ organizations 
in order to increase their total laark-up by duplicating' the margins 
allowed them, because independent but non-functional distributors 
appear to take advantage of margins allov/ed to any distributor, or 
because distributors at the same level (eogo importers, retailers) 
by in-trading among themselves, add part or all of their allowable 
mark-up on each sale. This disadvantage is probably not inherent 
if a regulation is carefully drawn an^ well enfox’ced. It y.all be 
further discussed, belov:, under "Problems”, 


^ *" Pg^centage margin control vd.ll pyramid every 
cost increase. Thus, if an import from the united Gtates passes 
through three hands before it reaches the ultimxate consumer, and 
each of t'nese sellers is alio’.'^ed, sag', a 50 ^ mark-up, a IG^ increase 
in vj-ar risk insurance rates will result in a price to consumers 
increased bj,^ much more than IC^a. 

5 “ Consumer policing of prices is impossible 
v/ith margin control: the consumer can not kriov; i/here, when, and 
from whom the product was bought, and therefore he can not judge 
as to the legality of the price charge ^ him, 

llargin control may result in prices for the same 
article which are entirely/" different from a.11 normal price relation- 
sliips. Thus, if the same drug is imported by Colombia from the 
United States and Argentina, the operation of margin control may al¬ 
low an Argentina price far higher than that allowe 3 for the United 
States pro('5uct. Part of this problem, of co’oi'se, stems from the 


.i-7.j6V-ixg. .y of 



-23- 


lack of either domestic or export price control in (for example) 
Argentina: since the baoO price is varlabj.e and likely to increase, 
any pricing method mnist riecessarily rnn into difficaltios, Margin 
control at least dees noo threa.ten to shut off high-cost supplies 
or, to ruin importers or other Colombian sellers, but it does have 
the follovang peculiar disadvantages under conditions of high-cost 
and lovj'-cost sources: 


• a) If the margin is a flat percentage for each 

product at each level regardless of cost to the seller, the tendency 
Y:ill be for sellers to refrain from buying from the lov:-cost source 
,and,to secure their supplies instead from the high-cost source» 

b) Regardless of how the margin is calculated,' 

some identical products may have two prices. Since on many standard 
products the counury of origin may be impossible to establish (this 
is particularly true if the high and low costs goods are subject to 
additional processing or manufacture), many sellers even, and cer¬ 
tainly all buyers ulll be unable to deterraine the appro] riate ’sell¬ 
ing price. Thus honest failure to comply ivith regulations is made 
possible, and dishonest- failure is made easvo 

c) The public will be confused, to say the least, 
if the same or similar goods have differe^nb prices. Ordinarily, 
the lower cost good w'ould drive the other from the market, but 
under present conditions shipping or other supply problems may 
prevent such a result. 

■ C- - Problems, 

' , Some of these problems have already’' been fore¬ 
shadowed in the preceding discussion of the disadvantages of margin 
control,; others relate more to techniques than to principles'. 

Permissible distributive channels must be clearly 
defined, and the permissible mark-up for each le^vel of distribu¬ 
tion must be so drawm as to fit the individual circumstances of 
every major type of sale. This requires, to begin with, knowledge 
on the part of the price interventor of the "normal” channels of 
trade - through how many and what hands most goods move to consumers. 
Thus, in the drug trade, the following '"legitimate" distributors 
may exist: foreign manufacturers’ or exporters' agent, domestic 
impc,rter, .domestic vfholesaler, domestic inraorter - wholesaler or 
importer - wholesaler retailer, domestic manufacturer, domestic 
wholesaler .- retailer, domestic retailer, etc. Eveigr combination 
need not be exp3-ored, but the t 3 ^'Dical trade’ channels should be . 
determined and established in the resolutiono 


-24- 


Next a decision r.nst he made as to I'inether it is 
vj'ise to "freeze” existing* channels by providing that goods can 
move to consumers only through speci.fied means (as,, for exam-ple_, 
from, foreign manufacturers' agent to domestic retailer or to 
domestic wholesaler)c Further_, "freezing" of the firms in an 
industry - pai-ticularly of import firms - may seem desirable in 
order to restrict the trade to establishjed and therefore nre- 
sumably reputable and law-abiding firms who h/ive fuuure good~Virill 
to consider, and to prevent other firms whose stock in trade is 
no longer obtainable from swarming into the fields stil] open and 
cutting dowT. volume of sale per firm vfith consequent increased 
costs per unit sold. 

More important, over-all margins should be estab'- 
lished so that resort to unnecessarily circuitous distribution 
methods is unprofitabler A regulation migiit state, for example, 
that the retailers' margin should be so much and that the sum of 
all disbributive margins below the retail level should be so much, 
thus penalizing unnecessary buying and selling. This principle 
may be carried even farther by prohibiting sales by one wholesaler 
to another, but such prohibition w;ill create problems if the same 
firm undertakes several-functions at once, e.g,, importing, 
wholesaling and retailing, and it should be avoided if the method 
of maximum permissible margins for each specifiod level of 
distribution can be enforced, 

2 - The margin allowred the agent of a foreign 
manufacturer is meaningless without a clearly established base 
price on which the margin may be com.puted. Perhaps the best basis, 
both to facilitate enforcement and to ensui’e comparability ■'.vith 
domestic importers, is the domestic selling price of tlie agent's 
principal in the foreign country v>rhere the good is produced, plus 
necessary freight, insurance, customs duties, etc, 

3' - The position of w/holesalers and commission 
agents should be clarified in thc3 following respects: 

a) Are they necessary to the trae’e? If not, it 
should be determined whether their fees should be specifically 
outlawed in the resolution. 

t 

b) The maximum fee and method of calculatj.on 
should be determined, and Yfritten into the resolution. 

c) Do they customarily charge the buyer, or the 

seller for their services? The custom here might be"m.ade the 
absolute rule in order to avoid confusion; in any case, a biroker 
should be forbidden to collect his inaxim.um commission from both 
buyer and seller, • 


-L- /nbV—pg. 


.7 of 7i 




4 “ The' problein. created when the sane article 
is available.-from two or more sources at different prices, may 
be approached as follovfs: 

a) If the difference is not great and will prob- 
a})ly not- be greater in the future, it may be simplest to nrovide 
that the buyer from these sources shall be allowed to resell all 
of the articles at a single maximum price equal to liis cost'plus 
a conservative mark-up on the highest-cost product. 

^ b) If by far the greater proportion of the supply 
is coning and ?dll probably continue to come frorn one source, the 
mark-up should be calculated on tlie basis of cost from this source, 

c) If supplies are available and-v/ill probably 
continue to be available in more or less constant r)roportions from 
high-cost and lov;-cost sources, the mark-up may be calculated on 
the basis of the weighted average of costs from tliese sources.. 

This calculation is, of course, made difficult by the fact that 
different importers may draw from each source in different pro¬ 
portions, A pooling plan to equalize the portion of these im¬ 
porters is theoretically possible but practically comiplex. 

d) Even if supplies arrive in different propor¬ 
tions from time to time, a weighted average method may be em.ployed. 
The pooling adjustnient vrould be still more complex, however, in 
this case, and the possibility of difference in the position of 
individual importers even greater. 

• e) It is always possible, of course, to provide 
thia-t the allov/able mark-up may be added, to each individual cost, 
resulting -in different maximum sale prices for substantially 
identical goods, 

f) The Government may buy direct or through 
importers or other merchants from high-cost sources, or from both 
high and- low-cost souroes. Such purchases may be resold at a l.oss, 
at average cost, or at a profit, 

- ■ g) The Government, may attempt to obtain more 
supplies, from .the low-cost source, and fix markups on the basis of 
the lovf-cost source with the deliberate intention of cutting off 
high-cost imports, 

h) If the high-cost sunply is imiported'from a 
foreign countr;)’-, the Governm.ent might approach other nations pur¬ 
chasing froiPi this country.’’ with a plan for unified joint buying. Such 
a plan vroulc^ probably reduce prices somewhat in the high-cost countrjr 
of origin, ' -. 



- 26 '-' 


. Point 4 has been discussed in terms of control at 
the import level or as near to the source of hiph-and-lov/ cost 
goods as possible. This vras done because of a feeling that plans 
for equalizing costs or for direct Government trading should be 
carried out ’>Tith a minimum of disturbance to the majority of 
sellers. Distributors below the retail level are likely to be 
larger^ fewer in number, more accustomed to Government control and 
more accurate in their book-keeping than retail stores. Therefore, 
intervention to equalize prices or reduce the final price of high- 
cost products below the amount allov;able with standard margins 
should be concentrated below the retail level, 

5 - Inventory problems: inventories bought at 
different prices cause difficulties in addition to those discussed 
above in considering purchases from high and low cost sources. 

They also present a special problem of definition - if a m.argin is 
established to be added to the cost of a particular good, on what 
basis is this cost to be figured? 

Provision for deterraining inventory valuation may 
take many forms, but the ma.in possibilities are as follows: 

a) "First in, first out" - meaning that the cost 
of the good sold is taken to be the cost of the good ?/hich has 
been longest in stock. 

b) Average - meaning that the average cost or 
preferably the weighted average (cost of each item in the inven¬ 
tory; quantity of inventory bought at this cost; the results 
added and divided by total quantity of inventory on hand) is taken 
to be the cost to which the allowed mark-up shall be applied. 

This method is, of course, not independent of the inventory valu¬ 
ation method applied by the individual merchant to the separate 
items in liis stock. Like method, (a), this device has the advan¬ 
tage of sloiiTing price increases by introducing a lag bet-VTeen 
costs and sales prices. Therefore, both of these methods have 
some efficacy in checking inflation, although if costs of' new 
goods being added to inventories are advancing, control based on 
these methods can constitute no more than a delaying action. These 
methods (a) and (b) ma;/ also operate to cause some check on prices 
paid for supplies from sources vdiose selling prices are not con¬ 
trolled. 

Both methods, however, suffer from the following 

disadvantages: 


i - If costs are not and cannot be controlled, to 
use the cost of that part of the inventory which rras purchased 
first, or to use the average cost of inventory held, m*ay result in 


l-7dbV-pg. ^9 of 71 





-27- 


a maxim-um porinitted price r/liich is lovrer than the replacement cost 
of the goods currently being, sold. It will be hard to convince any 
merchant that he is not being slowly bankrupted by the operation 
of such a system. On the other-hand, if the tnargin is made high 
enough., to allow a reasonable return on replacement cost, the metlx)d 
becomes practically that described in (c) below, but with the dis¬ 
advantage not shared by (c) that if costs of acquisition become 
relatively stable in the future, the margin is excessive. 


Example ; . 

Origin cost of article now in stock v:hich vj'as 
purchased at a time six months in the past - 10 pesos per unit. 


unit. 


Average cost of inventory now held - 15 pesos per 


. Replacement cost of good bf'ing .controlled - 25 pesos, 

”No.rmal'’ miark-up in the trade for this type of 
dealer - 30^^ over' cost. 


If "first in, first out" is used as the cost 
criterion, .an^^''’ m.argins are established on the oldest article in 
stock, the result is 10 pesos ^ 3c^ or Ps, 3, - 13, This, in 
turn, means quick depletion of capital and probable bankruptcy. 


If average cost of inventory is used as the 
"cost" to wliich the "normal" margin is to be added, the result is 
Ps. 15 . 305 ^^ or Ps, /j.,5 = Ps, 19 p 50. The results are the sane 

as above, although the process is slower. 


If either of these two methods is used but the 
"normal" mark-up is adjusted upward so as to give a return in 
pesos equal to that obtainable by a "normal""mark-up on replace¬ 
ment cost, the folloYang viill occur: 

30% of Ps, 25 o- replacement cost equals Ps. 7.5, 

Add tlTis to Ps, 25 .- and the result is Ps. 32,5« 

. ^ 

If t?ie "first in, first out" method is used, the 
mark-up over cost required to yield a selling price of Ps. 32,5 is 
225 b - Ps. 10.4* 225 ^ or Ps. , 22,50 equals Ps. 32.50. 





n, I 


of 



-28- 


If the averaging method is used, the reqTiired mark¬ 
up is 116 2/3/0^ giving this result - Ps, 15. f 116 2/3 p or Ps, 17.5 
equals Ps. 32.50. 

/ 

Unless cost prices keep rising by a constant per¬ 
centage, ,an-fi this becomes a practical absurdity and even a mathe¬ 
matical curiosity once prices have reached a certain level, the 
result is that the high percentage mark-ups which were allowed to 
prevent banlcruptcy when control was first introduced now mean 
fantastic profits. Thus, if the cost price stays at Ps. 25., the 
225^0 mark-up over cost of oldest inventory will eventually yield 
prices of Ps, 25, r 225^ or Ps, 66.25 equals Ps. 91325, The 
averaging method, with its associated mark-up, leads to the samiO 
absurd situation in lesser degree, 

ii - Different retailers, importers, etc. have 
stocks of the same article bought at different times and bearing 
different relationships to their aruiual volume of sales of the 
article. These variations are lilcely to be greater when the 
supply situation becomes as abnormal as it is at present. Thus, 
if "first in, first out" or "average inventory cost" is prescribed 
as the base to which the permitted mark-up s?iall be applied, per¬ 
mitted maximura prices will vary greatly from store to store. 
P’urthermore, no two stores will be permitted- to raise their maximum 
prices at exactly the same timxe or by exactly the same amount. This 
is bound to confuse both sellers and the public. 

iii - Use of either the "first in, farst out" or 
"average" m^ethods for determining base costs is difficult even if 
inventory records a.re kept on a systematic basis and according to 
a definite method. Dnforcemxent vrould demand the tedious investi¬ 
gation of records by export accountant, and the checking of these 
records against physical inventories held. If the price controlled 
is that of drugs, for example, this checking of physical inventories 
is likely to require more technical kno’’:ledge than the average 
accountant possesses, 

iv - If inventory records are not kept, or if the 
seller employs no system in keeping them, he vj-ill be completely 
at sea as to how he should detennine his mxaximum j^rice. He must 
determine his price quite arbitrarily, and no definite check as to 
the legality, of this price can be made because no worthwhile 
records are available upon which the check may be based. 

The averaging method has a further disadvantage: 
in theory, the average cost of inventory changes every tim.e a 
sale is made except in the unlikely case that all of the existing 


i-7^o9—./go 3 -l of 71 


-29- 


inventory vjas bought at the saine price. To require such exhaustive 
recalculations ■'.foUld be absurdo Part of- this difficulty may be 
• overcome by-re'quirinq periodic recalculation of a-'/erage inventory 
cost, but-if'the period is short the’labor involved'approaches 
that required' for recalculation after each sale. Furthennore, many 
businesses‘have no experience- in making such calculations, and 
therefore recalculations even at long intervals may be burdensome♦ 

The longer the interval betvfeen recalculations, of course, the 
greater is the possibility of intermediate cost changes and of 
Consequent complaints directed against controlo ' ' 

c) Replacement cost is the remaining important 
inventor^’' method. This device does not suffer from the disadvan¬ 
tages discussed above: it is eas^v to calculate, does not cause 
hardships to sellers if their costs advance, and ensures a certain 
degree of uniformity in the prices of various sellers. Since all 
may not replace their stocks at the same time, some divergencies 
may still exist. Also, if costs are steadily rising, replacement 
cost alloYfs vdndfall profits to sellers because they are able to 
< figure their ''stocks” on the basis of a cost higher than that 
actually paid. This is a definite disadvantagej its solution de¬ 
pends on much the sane sort of action-as-that discussed in connection 
vd-th high and.;loyir-ccst supplies 'bought from different places , al¬ 
though here the question is one of high and Io^t cost stocks bought 
at different time s. 

Use of the replacement cost method also permits 
the rapid transmission of possible price reductions from the 
import or manufacturer level to the consuner. In other v'ords, 
it is an immediate means of removing - inflated mark-'ups throughout 
the distribution system. This may cause temporary hardship to 
some distributors Y^ho purchased thcdr prevj.ous stocks at inflated 
levels, but this vrould not be a continuing situation since use of 
replacement cost vYould allow them a reasonable miark-up on purchases 
of future stocks. Incidentally, this type of hardsliip is quite 
familiar to businessmen operating under conditions of plentiful 
supplies and competitiono 

The foregoing discussion has assumed that all 
existing stocks- offered for sale shall be offered -at a iriark'-up 
figured on the basis of the last shipment bought. This method 
is simple if mercl'vants selling a given a-rticle mark their prices 
only by commodities. If they mark prices on each unit of- the com¬ 
modity offered for sale (for example, by placing the sale price 
on each bottle of a certain drug specialty)',, this method would re¬ 
quire constant erasures and revisions which Y/ould consme their time 


i-73bv- 


i-W 


oj: 7i 


I 



-30- 


and make the pure lias er suspicious of the maxinum orice currently 
marked. When this system, of marking individual units is em¬ 
ployed^ "replacement cost" might better be defined as follows: 
at the date the regulation becomes effective, the allowable mark¬ 
up for all units then in stock is to be taken from a base price 
dete-rrained by the net invoice cost of the last shioment pur¬ 
chased, plus transportation charges if these vrere not paid by the 
supplier,- Subsequently, the cost of new supplies is to be taken 
as the base to Y/liich the maximum mark-up is to be added to deter¬ 
mine the selling prices of these new supplies, but the selling 
prices on previous supplies are not to be eJianged in an effort to 
give one single price for all supplies offered. Further, the 
oldest supplies are to be sold first, regardless of whether or not 
they are higher or lower in cost. 

Of course, a seller need not sell at a price as 
high as his maximum price. But if price control is to have any 
meaning, many prices wall be reduced by regulation below the level 
they would reach in a "free" marketj also, the veiw^ announcement 
of a maximijim price or maximum price method results in some tendency 
for prices to be at the maximum even though they might otheiwdse 
be beloYf this level. Therefore, the emphasis put on maximum prices 
as actual prices in the foregoing discussion is probably reasonable* 

6 - The problems of quantity discounts, discounts 
to particular classes of reseller or t;,y)es of trade outlet, cash 
discounts and credit terms for overdue accounts, are not peculiar 
to margin control, and the general aspects of this discount or 
price structure problem vdll therefore be discussed in a later 
memorandum. But margin control is based on acquisition.costs, 
and the possibilities of high prices through carelessness in 
purchasing or outright evasion are probably greater here than in 
the case of any of the other methods or techniques of price 
regulation* 

A good’margin regulation should contain the 
followdng tj^rpes of provisions: 

a) A clear statement as to w^'hether margins for 
manufacturers, im.porters, Y/holesalers and other sellers who do not 
deal directly wdth the public in making part or all of their sales 
are "gross'** (before subtraction of an^r dscounts.); based on the 
highest price charged to any class of business in a preceding 
period; or based on prices charged on the most important volume of 
sales in a preceding period* 


±-7j69-jpr. 


33 of 71 


-31- 


•■b) - -A, s.tateni'^nt as to the ariount' and the criteria 
for adjustment of Kaxirnun-or average margins to arrive at the mar¬ 
gins applicable to different t^^pes of sales. If the trade has a 
fairly uniform discount structure for sales- of different quanti¬ 
ties, sales for cash or on credit, etc., this structure may be 
"frozen” by stating that these differentials, discounts, etc., are 
to be retained. If .this structure-is fairly simple, or if the 
trade'has become very disorganized due to specu3.ation or other 
factors, it m.ay be wise to determine and specify the discounts which 
are to be subtracte-) from maxi-mum prices, together Yvith the t57)es of 
business to wriich they applj^ Or certain practices, such as split¬ 
ting an order so as to avoid, quantity discounts by delivering very 
small quantities at ver^'’ hi.gh prices, may be expressly forbidden. 
Since the seller ma 2 -^ make an extra profit from this type of prac¬ 
tice, and since the buyer may be able to pay exorbitant prices 
and still sell the article to. tlie public or tp another seller at 
Ills maximum perrrltted mark-upp definitions should be clearly es- 
'tablished and wasteful, practices (e.g. sales to retailers only 
in ver;;,’- small quantities) should be discouraged 

7 - If sellers regulated by the margin or 
"Mark-up" device actually perform operations which change the form 
or character of the product regulated, or if they buy in bulk and 
repackage the product for redistribution, a margin over cost of raw 
materials alo'ne may not be adequate. This is particularly true, of 
course, if the regulated sellers are manufacturers. Unless other 
costs are important, and unless the;/ are clianging or I'd-ll change 
rapidly, a flat margin leith no qualifications is probably the best 
control device. However, if containers and packaging, for example, 
are changing rapidly in cost, it ma;'" be necessary to allow a fixed 
margin, plus or minus change in container cost from a given base 
date or base amount. If manufacturing, operations are involved, the 
onl;,^ solution may be a pricing formula v.diich specifies the costs 

to be included and the rates (either stated in absolute terms or 
as of a certain base date) at which these costs shall be calculated. 
Such a pricing method is onl;" -'.-.’■orkable if the enterprises con¬ 
trolled }iave adequate accounting records kept in accordance with 
a system which does not vary too greatly from firm to firm; and 
if all costs are changing rapidly, it may be desirable, for lack 
of any better solution, to apply this method even if the con¬ 
trolled businesses have accounting records which, relatively, 
are quite inadequate. 

8 - There remains to be mentioned one final 
important problem: how is the size or amount of the margin (in 
pesos and centavos, or percentage) to be determined? This prob¬ 
lem is essentially one of the level at Yfhich maximum prices are 


--vjov-pg 




01 /.i 


I 



to be established, and the significant criteria and considera¬ 
tion have already been discussed under the title "The Level of 
Prices" on rages AS of memorandum No, II of this series. There 
needs to be added here simply the observation that maximum m.argins 
for a narticular article may take the form, either of (l) an indi¬ 
vidual mark-up for each separat e seller (oresumably based upon his 
"custom." or "experience "); (2) a single mark-up for all sellers of 
’the articles or {.'}) different mark-ups for classes of sellers., 
grouped size, yolume of business, or t^TDe,. The form to be 
selected depends entirely upon the kind of article and,' the nature 
of the trade - considerat:'ons which the price interventor must 
study and analyze, and yjlth which he must be t?ioroughily familiar 
before he issues’the price control resolution. 

In conclusion on the subject.of, price techniques 
ive may pofnt'out tha-t during the mian^'' months, of price control in 
the -United btates all of the techniques discussed above, (freeze, 
specific named prices, and margin control) liave been employed, .with 
respect both to different articles and to the same articles at 
different tim.es. All of these techniques are ■ still in use. In 
SO' far as there has been any noticeable progression, hoYfever, 
under circumstances which irould permit all of the techniques,to 
be made effective, the course has been fromi. (l) freeze to (2) 
margin control to (3) specific named maximum prices* 




-33 


. : _ : . - ■: w I::ay 19, 1943 

, f 

" ■ . ••:■• - IlK .1: .0 R A N.P U'M ■ 

■ To: Dr. Araujo 

From: Ben W, Lewis and James H. Nelson 

- Subject: Kodel Regulation and Sample Questions 

This memorandum is concerned with tha points and 
provisions to be kept in mind in drafting, a price control resolution, 
and the kinds of questions to which the Price Interventor should seek 
an answer in arriving at workable decisions on maximum prices. The 
drug trade has been used, pural^'- as an example, in draTfing up t;*,epical 
questions on industry facts„ Do- not be disturbed by the length of 
the list of points and questions* not all of the items covered are 
of equal iraportance, and not all of them need to be considered and 
answered in ever^/ instance: we have tried to make the list inclu¬ 
sive, with the intention that the Interventor s’nall make such use 
of , it as seems ajTpropriate to liira in individual cases. The arrange¬ 
ment of the suggested points and provisions, and of the questions, 
is entirely arbitrary, 

I - In drafting a price control resolution the 
•Interventor may well consider the following list of nrovisions as 
a check-list: 

1 - Effective date or dates of the resolution. 

2 - Coverage of the resolution: ■ 

a) Produc ts or services covered, carefully 
described. 

b) Tr ansactions covered , carefully defined 
lej.go sales by manufacturers? By whole¬ 
salers? By retailers?, etc. All trans¬ 
actions in the commodity named, or those 
transactions specifically named, or all 
transactions excent those specifically 
excluded) 

^ c) Persons covered (natural or legalj agents, 

etc.) 

Geographical coverage (e.g., goods bought 
and sold in Colombia, goods bought.in 
Colombia, goods sold in Colombia,.? goods 


±-'/3bv-^jg. 36 of '7_l 













-34- 


purchased for re-sale in Colombia^ - in 
vspecified parts of Colombia, etc») 

3 ~ iiaxim\iin Pr ices or maximum price method . Quality 

standards and definitions should be included 

here; and transportation charge and all discount 

provisions should be carefully detailed, here, 

4 - T reatment of Outstanding Contracts ; 

a) To be carried out regardless of the legal 
maximum price if entered into before a cer¬ 
tain named date (preferably a considerable 

,, time before the effective date of the reso- 

, lution). 

b) To be carried out regardless of the legal 

maximujn, but onl.y until a certain named 
date in the future. ^ 

c) Combination of (a) and (b): to be carried 
out if entered into before a certain past 
date, but only until a certain future date. 

d) To be nullified after the effective date of 
the resolution if the contract provides for 
prices higher than the legal maximum. 

In any case, the resolution should forbid any new 
contracts entered into after the effective date of the resolution, 
wMch provide either specifically or bi^ the operation of a formula 
for prices in excess of the legal maximum, 

5 - Price Adjustment Procedure to be followed by 
sellers who are not satisfied with the legal maximum prices; 

a) Time limit, if any, before vdiich any peti¬ 
tion for adjustment must be submitted. 

b) Time limit for action on the petition by 

the Interventor. 

c) Information v.diich must be submitted by the 
petitioner, and form in u'-hich it must be submitted, 

d) (Possibly) allOT.dng the petitioner to change 
his price, with the express permission of the Interventor, while his 
petition is being considered - subject to final change on the basis 
of the Interventor's final decision on the petition. 


x-7369-pg. 


3'7 of '/a 







- 35 - 


6 - Procedure fo r Prici ng I fev.’' P ro ducts ; Vv'hat the 
seller must c’o, and Yfhat the Interventor must do T^/c ,) price 
for - and no sales of a neTf product v:ithou'& express pemission of 
the Interventor; price to bo fixed,by the seller according to 
stated formula, subject to disapproval by the Interventor, etc.) 

“ P ^dvisions ag a inst Evasion,> These may be in 
detail, or simply in the form of a general prohibition against any 
practices vmich tend directly or indirectly to defeat the purposes 
and provivUioiiS of tho •■•■esolution. Probably the practices should 
be spoiled out cax'efuliy, folloP'ed by a general prohibition. 

d - L icen sing Proxd.sitms; Procedure for obtaining 
license (pahether all sellers at t!ie beginning ard to be considered 
as licensed, as a matter of course; or r:hether applications must 
be made); standards, if any, for granting; license; procedure for 
revocation of licf-nse; standards for levocation, 

3 “ In3"*ormatio n Pequireme nts: 

a) Records rrhich must be kept for the Inter¬ 
ventor* s inspection, if he so requests, and the form in vdiich they 
must be kept. 

b) Provisions for posting maximum prices, mark¬ 
ing articles id.th the maximum price, or Informing customers in some 
other way of tho maximum prices. These provisions are particularly 
important in the case of those selling to the general public 
(retailers)a 

c) . Provision for notif^dng the bu^m^r that the 
seller is subject to a maximum price- resolution, or tliat the buyer 
is subject to such a resolution, if he re-sells the .articles 
purchased. 


d) Provision for the seller to furnish the 
buC'^’dr with a record of the sale and the nrice charged. 

e) Provision for the seller to furnish a cer¬ 
tificate of his compliance YJlth the resolution, to the buyer at 
the time of sale or d.elivoim,’',. 

f) Reports T.'-hich-must be submitted to the 
Interventor: vdiat tliese must contain, in vihat form and detail, 
dates, for submission, whether si/orn statements, verified state¬ 
ments, etc. The Interventor may find it desirable to provide 
those controlled'Ydth standard forms for-reports, to be filled in 
and returned. 

10 - Relation to Previously Issued Resolutions . Does 
this resolution supersede or complement previous resolutions? Entirely 
or only in certain respects - and in what respects? 


.1 — pg . O't /J. 














-36- 


11-- Pen alties and Sanc t ions , Either in detail, cr 
by reference to the Price Control Decree, 

II - In examining an industry situation to determine 
T/hether prices should be controlled and^ if so, the techniques to 
be employed and the level of prices to be established, it may be 
that tne Price Interventor ■'.viil find usef^il as a check-list the 
folloTfing questions which have been devised, for illustrative 
purposes only, to serve as an approach to the conti-ol of drug prices; 

I - D'hat products are involved? 

A ~ Pharraa.copoeia (unbranded) fine chemicals and drugs 

1 - For human use? 

2 - For animal use? 

3 - For use as agricultural insecticides and fungicides? 

4 For use as household insecuicides and fungicides? 

5 - Others, 

B “ Pxcprietary medicines - brand names - same sub-heads as 
A above ■> 

C “ Mixtures - prepared from A or B or both by pharmacists, 
etc», to fill Doctors' prescriptions, to put out under 
their ovm names, etc. 

Game sub-heads as A above 

II - Quality problems„ 

A - Are various fixed grades recognized in the trade? 

B - Are the suecifications for t?iese established in detail? 

C - Are these specifications already enforced by other 

legislation or are they readily and easily identifiable 
by inve stigatio n? 

D - Any evidence of quality deterioration? 

III - Price problems; 

A - IIa-<7e retail prices of any or all drugs risen? 

B - l/7hat figures are available to illustrate the .articles, 
if any, for Yirhi,ch retail prices have Increased, and 
the absolute and relative amount of this increase? How 
vjcre these figures obtained and compiled? Do they seem 
to be representative of conditions in the entire 
counti^’’, or do they: refer to particular areas or to par¬ 
ticular establisliments within these areas? 

C - If retail prices have risen, is this due entirely to 
^ speculation at the retail level or have costs to re¬ 

tailers risen bv the same amount? Are these increased 
costs to the retailer due to increased costs to w)iole- 
salers, importers, manufacturers, etc., or to specula¬ 
tion at one or all of these levels? 


1 - 


poy-pg 


.IV of 


71 



-37- 


- Distrib-uticn channels; structure of the market: 
A - Imports: 


1 - From where - United States^ Argentina. Great Britain, 

Gancida, etc. - How do present price levels and the 
amount of price increases from each of these sources 
compare? 

2 - Number of exporting firms in each country dealing 

with Colombian iruporcers - does each of these firms 
sell a large variety of drugs, or is the trade 
charac'oerized by snecralization on one or a few drug 
products? 

3 - Number and status of importing firms in Colom.bia: 

a - Total number, and number of important importing 
firms, 

b - VFnat is the approximate capitalization, annual 
volume of business, and credit position of the 
firms doing the majority of the country's drug 
importing? 

c - Wliat is the connection between the major im~ 
■Dorter-s and their foreign sources of supply - 
do they act as agents, or do they buy outright? 

d - Does each importer concentrate on the products 
of one foreign manufacturer or supplier, or does 
he buy from or act as Agent for several suppliers? 
In the latter case, is there a tendenc3r to con¬ 
centrate on suppliers of one country, or do some 
importers' bring in drugs from several national 
sources? 

4 - Have '^oreign sources of su-oply changed recently and 

is there a likelihood of further changes due to 
relative abundance of supplies, shipping problems, 
etc, ? 

B - Domestic Production: 

1 - Number of firms, 

2 - Size of firms 

3 - Financial and operating condition of firms - at 

present and relative to recent years? 

4 - Are some or all of materials used imported? If so, 

see questions under "Imports", 



n 

I 




of 71 






C - Wholesale^ retail, etc.^ distribution channels: 

1 - Do all drugs nove through more or ?Less the same 

channels to consumers? If not^ can groups of 
drugs be classi:^ied together in regard to the 
chaniels through Yv’hich they move? 

2 - Are lYholesalers or jobbers typically found be- 

ti/eejn importers or (’omestic nroducers and re- 
taile'.rSj are there none^ or do retailers do some 
or all of their own imporuing? 

3 “ Has a ter.dency appeared in the last two years to 

introduce more middlemen or to eliminate some pre¬ 
vious stages of distribution? 

4 “ Hay retailers be sub-divided as independents, 

chains, or branches? If so, has there been and is 
tnore any mai'ked and consistent difference in 
prices charged by each group? 

5 - Is retailing carried on through specialized drug 

stores, through drug stores also handling other 
products^ or through general or department stores? 

Is the method used the same throughout the countr^^, 
or does it very from place to place? 

V - Cost position and cost information; 

A - V.'hat is considered to be the ’’normal'’ relationship 
bet''.:een cost and nrice at all levels of production 
and distribution? Are standard cost methods vadely 
used for costs other than raw materials, or does this 
varv? Inventorv valuation methods? 

t 

B - Cost changes during the past two years: 

1 - Importers - 

a - Change iii buying price abroad? Due to : 

(1) Price increases before United States 
regulations were intro^hjced 

( 2 ) Price increases since then - domestic price 
increases or export price increases? 

( 3 ) Movement through different ports abroad, 
with possible changes in foreign transport 
chargeso 

( 4 ) Domestic or export price increases in coun¬ 
tries not controlling either or both. In 
countries controlling domestic but not export 
prices, wliat has been the change in the rela¬ 
tionship between the twro? 

b - Change in exchange rates governing conversion of 
Colombian pesos into other currencies. Due toj 
( 1 ) Alteration in export - import value ratios. 




^ ' .-Nr'' 

A;.J- Oi f 1. 


-39- 


(2) C-hange in exchange control regulations of 
the Colombian anb other govenments, 

c - Ocean shipping anf^. other "International trade" 
cost changese 

(1) Increased ocean freight charges. 

(2) ' " war risk insurance 

(3) " marine insurance 

( 4 ) " warehousing charges in foreign or 

Colombian ports, due to delays in shipment 
or increased warehousing rates, 

d - Changes in cost in Colombia 

( 1 ) Diversion to ports not pre\'lously used for 
particular di*ug imnorts - different handling 
charges? Different freight costs to desti¬ 
nation? 

( 2 ) Reduced imports, and uncertainty of sunplies, 
i.'ith resulting slo^rer turnover and allied 
necessity to increase margin of nrofit per 
unit sold in order to receive same return on 
capital invested. 

■' ( 3 ) Increased snoilage or other depreciation, 

( 4 ) Other cost chianges. 

VI - Flow of sunplies: 

A - Scarcities due to decline or suspension of imports: 

1 - Irregular flop' due to irregular ship movements, sink- 

port and transport congestion. 

2 - Diminished volume» 

B - Scarcities due to increased demand, 

t 

C - Speculative hoarding: 

1 - Can this be defined as ratio of stocks to sales or a 

variant of this? 

2 - At what levels has this occurred - manufacturers, 

importer, wholesaler, retailer, etc, 

VII •- Coverage of price regulations: 

A - VDiat drugs, m.edicincs, or fine chemmcals shall be 
exempted? 

1 - Ncn-eSsentials - which are they? 

2 - Products v/ith no uniform, or leell defined marketing 

channels? 

3 - Provducts whose prices have not increased specula¬ 

tively or inordinately? 

■• 4 - Products produced for the first time domestically to 
replace foreign supplies which hava disappeared? 


j--7jo9-pg. 4'-- of 7i 










-40- 


B - V/hat outlets or unporters or manufacturers shall be 
exenpted? 

1 - Nevr and experimental manufacturers? 

2 - Iledicines com.Txuinded in local Tdiarir.acies to fill 

■prescriptions?' 

VIII - Possible methods of pricing: 

A - Freeze as of base date*^ 

1 - Identification of items? 

2 - Possible lags in nrice increases (or declines) 

going from first seller through to retailer, so 
that in extreime cases retailer might have to pay 
as maich or more to replace his stock as his ceil¬ 
ing price allows him.o 

3 - Possible great difference in nrices, vdth low-price 

stores feeling that their tieahrent lias been in¬ 
equitable simply because they had not been specula¬ 
ting » 

B - Specific prices-, 

1 - Identification of articles to which prices anply? 

2 - Government information on ''normal" price conditions, 

G - llargin control (control of rmargin between price and 
cost) - Same questions as B above, plus question of 
definition of costs. 

D - Any other formulas or methods. 

IX - Necessary'- information and record requirements: 

A - Informa-tion. 

1 - Do cost of living records for Bogota, and Medellin 

include any drug items? If so, how many? 

2 - Do Charaber of Commerce an'^ other sources have price 

information? 

3 - Have domestic manufacturers or importers Issued 

catalogues or price books during any or al]_ of past 
several yenrs^ and do these price books, if any, 
represent actual selling prices? If not, can a con¬ 
sistent discount policy be discovered? 

4 - Do Government income tax returns, corporation studies 

or reports, or stock exchange publications or 
records show financial and profit position of main 
drug manufacturers, ir.porters, wholesalers and re¬ 
tailers for past several years? 

5 - Does drug control board possess records on drug 
■ prices and costs? 

6 - Any' other 'source of information. 


±- 


73 07- 


■pc 


i.7 OX fj. 



-41- 


B - Record and/or reportinf; requirements for dealers in 
[^oofls vrhose prices are regulated: 


1 - Records of stocks on hand 

2 - ” of annual volume of business^ 

3 - , ” of acquisition costs - on what basis? 

Replacement cost? Original cost? Other? 

4 - Submitting ceiling prices to government? Posting 

ceiling prices in stores? 


X - Possible evasion: 


A 

B 

C 

D 


A 

F 


Elimination of discounts previously given^ 

Short -weight or measure 
Inferior quality 
Combination sales 
''Black market" sales. 

Introduction of "new" products which are practicall 3 r 
the same as the old but command a higher price. 


See point II - "Cuality Problems" 


XI -■ Industry personnel and trade practices: 


A - 


llho are the industry leaders at each stage: 

1 - Best knoi'm 

2 - Best reputation in trade or with public 

3 - Largest sellers 

4 - First to establish prices that other sellers follow. 


B - Any trade association, trade price - fixing plan, or 
other trade organization? 


C - Do co~openatives exist and are they important 


V 

* 


XII - Importance of other Government Agencies: 


A - Yifhat other Government control organizations exist in the 
drug field? Central or.local? 


B - 


What information have they as to quality standards, en¬ 
forcement problems, trade policies and prices? 


C 

D 


Can a co-operative arrangement be worked out with them? 
Vlhat positive controls do they now exercise? 




i-7jbV-pg. 44 of 7-1. 


-42- 


XIII - Other remedies for high prices; 

A - Direct government buying (at luhat stages) and re¬ 
sale (at what stages).' 

3 - Subsidies - to whom and on what basis? 

C - Government production* 

D - Government encouragement of co-operative or similar 
outlets. 


Ivlajr 20, 1943 


M E 0 R A D U M ■ 

To: Dr. Araujo 

From; Bon H'K DeYfis and James He helson 

Subjects Next Steps on Price Control - IV 


The present memorandum, the fourth under the above 
title, is concerned with problems of price control most of vrhich have 
been mentioned or discussed briefly before, but whiich seem to us to 
vrarrant fuller treatment than it has been possible to give them in 
our earlier statements. The selection and arrangement of topics is 
arbitrar^T". ' 


’' ^ “ G eog rap hical Price Patte rns; Gecgraphical price 
patterns must be recognized and taken account of in establisiiing 
schedules of maximum prices'in order to keep price control from pro¬ 
ducing -an abnormal distribution of goods;' Shortages in one area and 
surpluses in another will always occur, even in normal times,.and 
they rdll, of course, be accentuated under' present'condition of ab¬ 
normal transportation. But, whereas under normal circumstances auto¬ 
matic 'price adjustments tend to correct shortages and surpluses, the 
imposition of price control, by preventing automatic price responses, 
will greatly aggravate the probl-em, unless steps are taken along the 
follo'^^d.ng lines: 

a) Ascertain the present and probable future location 
of surplus and shortage areas for specific -nroducts to be regulated. 
Thus a price in Cali predicated upon delivery from Buenaventura may 
result in a shortage in this area if the next shipment arrives in 
Barranquilla, A bad wheat or rice harvest m.ay change one area from 


( 


i-7369-pg. 43 of 71 







-43- 


surplus to deficit almost overni[;ht, and the price controller must 
move quickly to adjust maximum •'trices to ixirinit tlio necessary re¬ 
versal in movements of the products„ 

b) A scertain the prevailing method of price quotation 
for the product delivered to the buyer, f.Oobo, Coi-f., f-^a^Se, 
delivered in particular zones, \\dth prices varying from zone to zone, 
freight allowed to certain customers or destinations etc.. Unless 
surolus areas become deficit areas, or vice versa, the f^Oob, point 
of origin (domestic goods), and c.i.f,, port of entry or foa..s,, 
port of shipment (im*ports) methods of quotation are the best for de¬ 
termining maximum prices without causing local surpluses and short¬ 
ages. This may be true even if the product regulated was formerly 
sold on a delivered basis, but any change in methods of price quota¬ 
tion- should be thoroughly studied in co-operation vdth the industry 
before it is introduced. 

c) Keep informed as to the status of transportation 
throughout the country", and as to the existence of .partial or total 
transportation stoppages which suspend supplies or necessitate re¬ 
routing. This is particularly true if min imum prices are decided 
on, since such breakdoums may over.vhelm the government v.'-ith produce 
for sale at tlie minimum price. It is also true thau., if the re¬ 
routing adds expense, immediate price adjustments may be necessary 
to avoid severe local shortages, 

d) Draw the transportation provisions of price reso¬ 
lution (especially those stating prices on an f.Oob, basis or allow¬ 
ing margins or mark-ups over cost) so as to discourage or prevent 
the use of costly and wasteful transportation methods and routes. 

This is necessary,^ not only to prevent excessive prices, but also 

to reduce the strain on the overburdened transportation system, 

2 - T empera!! Price Pa tterns; Temporal price patterns 
must also be carefully vutched. Many products incur considerable 
warehousing and other storage cliarges between production and con¬ 
sumption. This is mrticularly true of bulky agricultural, products, 
and of products rrhose production and sales volumes vary independently 
of each other throughout the year. If the price of the product has 
shoTm iTicirked and characteristic month-to-month fluctuations in the 
past, this fact should recognized in the price regulation.■ Fail¬ 
ure to do so may mean market demoralization and an alternation of 
feast and famine. 

3 - Provisions against Evasion : Price resolutions 
are meaningless unless .certain effectively enforceable- provisions 
against evasion are incorporated. The more common types of evasion, 
and the more common measures taken to prevent them, are as follows: 


-73o9-p£- 46 


of 71 




-44' 


w eig ht o r me asure. This can be checked 
either by specifying the unit to which the decreed price refers, or 
if this unit has not been standardized on a liter, kilagvam, or 
sirrilar basis, by providing for a minimiam content, length, etc, v;hich 
may be sold at the price establi.shedo 

b) Qualit y de terioratioiin Control of the prices of 
goods Yvithout controlling their quality afiords only empty protec¬ 
tion to consumers. The customer is interested in what, he receives 
fully as much as in what he pays; and if quality dateriorates, the 
fact that the price remains constant is small comfort. This method 
of evasion is hard to check, because tests cf qualit^^ are extremely 
difficult to devise and frequently involve personal opinions on 
vdiat is ”good'’, ’'better'*, etc. The problem can not be avoided, how¬ 
ever, and resolutions setting maximum prices must define as clearly 
as possible the nature and quality of the goods to which the prices 
apply, and must provide for a scaling dovm of the price if the 
quality of the goods is pej'mitted b2'- the seller to deteriorate. 
Definitions of "quality" must be carefully drawn, and it must be de¬ 
termined in each case, in advance, vrhether the significant factor is 
one of cost, physical comxposition, design or usefulness, or some 
combination of these. It should be kept in mind that mere change in 
composition or design does not nec essaril.^?' constitute quality ds- 
tei'iorationc A system of premiums and discounts may be included in 
the resolution, to adjust the price of the goods to am?" change in 
quality. The adjustment in price may reflect changes in cost , or it* 
may be made to penalize the production of certain qualities or 
characteristics, and reward the production of others deemed more de¬ 
sirable. 

Nothing should be done, except in rare cases where 
valuable materials are being wasted in the making of completely un¬ 
serviceable goods, to prevent the making of lovrer quality goods; but 
it should be insisted upon that if lower quality goods are made, the 
maximum price, too, shall be lowered. 

The resolution may stipulate that the percentage of 
loTY-quality, low-price goods to the total sales of each seller must 
not'be reduced, or that it m.ust be at a certain level. This may be 
necessar^^ if materials become scarce, in order to prevent concentra¬ 
tion of production or sale on more profitable high-price items, with 
the result that the customer gets fair value for his mone3r but is 
forced to spend more than he used to spend, and possibly m.ore than 
he can afford, for the article. The purpose of such control is highly 
commendable, but it should be used only if the disappearance of loiv- 
priced items is forcing many needy purchasers out of the market. It 
presents grave administrative problems, especially if the public taste 
has genuinely shifted, to the higlier-priced product. 


.L —""Z "'i r lO) 


3b9-Pfa. 47 of 71 







-45- 


cO Discounts which have been regularly allowed 
prior to control for contract purchasers, purchasers in large lots, 
purchasers of particular types (e.g,, wholesaler, large retailer, 
small retailer), purchases for particular uses, purchasers for cash, 
etc, may be changed by sellers, to evade price maxima, unless pre¬ 
vented, kinimum discounts should be set forth in the price control 
resolution if it affects sales at any level belovj" the final consumer# 
If the trade is complex, and clear information on its discount struc¬ 
ture or concise and comprehensible translation of this information 
into the language of a price regui.ation is impossible, the only so¬ 
lution may be a "freezing*' of discounts Tvhich have been allowed to 
particular classes of customers (carefully defined) as of a given 
date. Evasion by means of changing discount practices should be pro¬ 
hibited otherwise conceal.ed price increases will occur and the cus- 
tomar^r channels of trade raa^r be distorted. 

d) Combination sales (i.e., sales req uiri ng the pur¬ 
chase of some other uncontrolled article along mth the article 
whose price is controlled) should be prohibited if they were not 
customary in the last "normal’* business period before the resolution 
is issued. Even if such sales were customary, the accompanying cir¬ 
cumstances should be thoroughly investigated, and tlie custom changed 
by the resolution if its continued operation idll defeat the pur¬ 
poses of price control. 

* 

e) Discontinuance of free deals, "special offers'*, 
etc., should be specifically forbidden if such practices are knoi'm 
to exist in the trade regulated, and if the seller can not prove 
that these offers which existed prior to regulation were purely 
temporary in nature. 

f) Forcing the bm/'er to bear more than his customary 
share of transportation expenses ma^r be checked by specifjdng exactly 
what division of transport costs between buyer and seller is legal, 
by "freezing" transportation provisions as of a particular date, or 
by forbidding any change which requires the buyer to pa^-- a larger 
share of transportation expenses than he has normally paid to this 
seller. 

g) Contracts may be uvritten which provide ''escalator" 
clauses alloi'ving the payment and receipt of prices above the legal 
maximum. If the contract flatly states that the price is to be above 
the legal maximum, it is obviously illegal. If it provides for in¬ 
creased prices depending upon the operation of certain stipulated 
factors, it may result in the payment of illegal prices* This evasion 
can be checked by stating that no prices above the maximum may be 
cliarged regardless of the terras of any contract. If the resolution 
permits a specified margin above cost, evasion can be prohibited by 
providing that costs not specifically enumerated in the resolution 
may not be included in the cost calculation, or by excluding ’any 
portion of those costs not calculated as provided in the reso'lution* 






1-7369-pg. 48 of 71 


I 


-46-■■ 


■ • h) Miscellaneous evasions may take an endless 
•variety oi* foians. Tkey may be covered by’a "portmanteau’’ clause 
forbj.daing^ "any other device to evade the intent of the price regu- 
laticn directl^/j. or indirectly” or by a specific statement that 
prices • na.med-are gross prices T/hich can not be exceeded by any de¬ 
vice vmatsoever, - - , 


■ 4 T.j'censes; Licensing* may be necessar^r to■ con¬ 

trol the trade. The most expeditious method of ini'.ro<hicing such 
a s^^ston is to provide that all sellers are au^om-a licall:/; licensed 
vrlten the resolution is publ ished or v:hen t’nev' coimnence sale of the 
article controlled. This eliminates the tedious chore of receiv¬ 
ing hundreds of thousands of appliccutions fdr licenses and issuing 
slips of paper to each applicant, and it mkes available the' device 
of revGcaticn of the license to sell the controlled article as one 
m.eans of compelling observance of price regulations. On the other 
ha.nd, to require individual applications for licenses i.'ill furnish 
trade iriormation not othertiise available, and 'such applicaticns 
"may...be especially helpful if investigations of stocks on hand are 
anticipated. 


5 - Restricti on of Entry in ro Trades: Restriction 
of entry into the trade may be necessary to prevent sellers whose 
supplies of goods are no longer available from entering Inuo nevr 
•fields where supplies are also short. Such action leaves still 
fevrer goods for each person in the trade invaded^ it may also lead 
to inefficient- distribution channels and mcuhods. In either case, 
a future clamor for higher prices is possible. 


Canada lias flatly forbidden the sale of articles by 
persons ivho-were npt selling them on the date of the order. The 
United States has in generhl' refrained from taking such action. 
Unless the invasion of particular trade channels is threatening.to 
defeat price control, such freezing of distribution ma^^ seem univise. 
It grants a pre-emptive right to existing sellers, is hard to en¬ 
force, and achieves no' priraar^- price control objectives except in 
extreme cases. - 


' 6 - Required Selling ; If sellers at retail also 

engage in sales to competing'retail stores, regulation of the pro¬ 
portion, of total sales rdnich must be made to these other stores may 
be necessary, in order to. keep the smaller retail outlets in business* 
This phenomenon of refusal to sel?. is not attributable to price con- 
trolj. in fact, price control may ihvduce an increase of sales to other 
retailers, by fixing an upper limit to the prices the la rge retailer 
may receive from sales direct to consumers. Its cure involves an 
administratively difficult task. But the problem should be recog¬ 
nized if small retailers can.not get supplies of m^any items, they will 
clamor for higher prices on items they are still able to obtain, in 
order to stay in business* 


-7ju9 


■pg- 


^.9 of 7 







-47- 


7 - C ontrol of Trade Channel s; In general, normal 
(distribution cliannels should be knoim to the interventor before a 
resolution is issued, and they should bo recognized in the resolu¬ 
tion unless good reasons exist for eliminating them* At the same 
time, careful draftsmanship is necessary to prevent the appearance 
of new and unnecessary hands through which goods must pass on their 
vfay to the consumer. Such multiplication of trade outlets may 
amount to evasion; it may occur in good faith, but lead to ineffi¬ 
ciency, Regardless of the reason for their appearance, neYir levels . 
of distribution shorO.d be forbidden or at least forced to prove 
themselves necessary* The foregoing applies •• particularly to 
brokers and commission men. If these are not customary in the 
trade, brokerage and similar comissions should be forbidden, or the 
seller should be require^ to absorb them instead of adding them to 
his maximum price, 

8 - Nevf Products ; New products present a problem 
for any type of price control. These new products may be the result 
of simple relabeling, or of some other de^/ice to evade a regulation; 
thejr may be necessitated by the impossibility of obtaining raw 
materials formerly used; they m^y represent technical advance or 
the answer to a nevf public demand. They can not be forbidden, but, 
unless evasion is to become rampant, their prices should be con¬ 
trolled on principles consistent with those applied to the prices 

of the most nearly comparable product Yfhose price is regulated. 

Any seller of a new product in a regulated field should be required 
to inform the price interventor of this fact at least two weeks be¬ 
fore the product is to be sold. He should also furnish a brief de¬ 
scription of the proposed use of the product, its physical ingre¬ 
dients, appearance, etc. If the interventor considers control of 
the price of this product to be necessary, he should use the facts 
submitted plus any other he requests to determine the most nearly 
comparable price-controlled product. Then he should apply the gen¬ 
eral pricing method used for this comparable product to-fix a price . 
or pricing method for the new article. This price should be low 
enough to check evasion, and high enough to allow the continued 
appearance of nev/ articles. 

, Some lines of business bring out enormous numbers 
of new products. The interventor may save time and trouble for both 
his Office and th*^’ businesses affected by establishing a prescribed 
method for the pricing of such new products. This may be for the use 
of the interventor's staff only, or it may be published for the con¬ 
venience of sellers who may then submit a proposed price, based on 
the prescribed method of calcu].ation, for approval. Such applica¬ 
tions may be further expedited by providing that the proposed price 
shall automatically become the legal maximum unless the interventor 
rules othen'dse, or requests additional information vdthin a speci¬ 
fied (and preferably brief) period of time. 







-48- • ■ 


‘ 9 - R entin g of G oods:. Certain products mav remain 
useful'for months or even years# Some articles in this '^o'urable 
•goods-' cate gocan not eesily be rented, (e^g'#, clothing). Others, 
such' as building raaterials, are 'incorporated into further products 
Whose rental is a matter of course. Certain types of machinery and 
' automotive equipment are v;ell adapted to renting, and t?iex'’afore a 
regulation' governj.ng their sales price must also consider the possi¬ 
bility of the article being leased. To prohibit .-rentals may work 
hardships and prevent efficient utilisation of limited supplies. A 
more nractical "approach is to establish mamiim-um rental rates at the 
same tim.e that'”mas<;iT::um sales prices are set. Since many Kinds of 
goods, although rontaolo, have not 5.n fact been rented, in the past, 

' trie Interventor may lia.ve to pioneer in estahlnshing a ren-bal-system. 
Too, rentals may occur as devices of evasion even lihere they have; 
no -economic justification or stanc-ing in ordinary 'cbrimercial 
practice; tlierefore such a stop may be necessary. 


lO'- Services Rendered dth Sales of Goods; All 
'■ sa,les’'involve the pei'foJTia'x-jc'e of certain persona], sei'vices; some re¬ 
quire-"services d;:hich emoloy numerous ravp materials to make an entirely 
ne'w product. Ifahy 'retailers carry on small-scale ’^’custo'm'' raanufac- 
'turing operations. In such cases, the character of-'the ’service 
should, be examined as ^carefully as the character of the-h.ate rials 
used.'" Both form an integral -part of the "p’ro duct'''-bold." If cus¬ 
tomers'do or-may furnish'the rriaterials themselves (e.g,', custom 
■tailoring), a senarate Toirioe for the' service is essential. P]ven if 
■ •cus'tomers do not furnish materials,"hhd evasion of a price' regulation 
•"by this device Seem.s' highly uRllkely, ■'a separate se'rvice orice may 
result in a simpler and’more equitable price' regulationo 

■ * I . • . \ '» . . • * * • « ‘ ■ 

* • • * * V 

■■■'■ 11 hnus-i--! al 'Sales ; Certain abnormal t^/pes’ of sale 

exist which should be' mentioned' either in rartic-olar regulations or, 
'if possible,'in a'general regulation applicable to all controlled.' 
commodities. These abnormal sales include auction sales, transfers 
of a business to a 'new owner; foreclosure sales, other liquidations, 
etc. If it is decided to regulate this t^nie of sale when other'sales 
of the same commodity are controlled, specific provisions as to the 
application of orice control to these cases should be dravm up. For 
examole, if the maximum price bn a certain article -is to apply to 
■■ 'both '"ordinary" sales at retail and to auction sales,'and if several 
• bidders each offer the maximum brice at a oarticular auction, they 
'■- may be required to draw lots to determine the "highest" bid. 


A pro'd-sion to prevent a who^safe'auction from 
using retail maximum prices should also be~drawn""upc A single para¬ 
graph to cover all possible t^pbes of this situation may be impracti- 
'•cable'j if so, it should be omitted from a general order and placed 
'instead in each resolution, • ' ' • 


l-73b9-pg. bl of 71 










' ' 12 - Uncontrolle dr. Transactions Selective price 
control Tflap tempt sellers to shift their production or tr^de' to 
fields not yet controlled.iith importers, wholesalers, and re¬ 
tailers this danger is not acute; if, some discontinue operations, 
‘those reraaining do m.ore business., and the government can step in 
if acute disruption of trade organisation appears. The'problem' is 
more complicated when manufacturers or farmers are involved, A. 
raa.ximun: price:on one product may cause a pronounced shift to the 
production of other products. The controller should have a general 
idea of the;c possible shifts that may result from control of any one 
product. He may discover that he must control some prices which 
othermse Tiroul.d not have been supervised simply to prevent shifts 
in production; or conversely, control m.ay be deliberately held in 
abeyance in order to prevent shifting into less necessary products 
or to permit sellers to retain a-high-profit portion of their busi¬ 
ness, ■ Fihall.y, the’decree pro\cisions for enforcing continued pro¬ 
duction may be applied. This is probably a last resort y/Mch would 
be particularly hard to apply to trade* nn agricultural products« 


L^ay 21, 1943 


M E hi 0 R A N D U M 
To: Dr. Araujo 

Froms Ben 1/V, Lewis and James Ro Nelson 

Subject: Next Steps on Price Control -V 


Much interest has been evidenced 'in the possibility 
- of achieving effective control of the prices of goods imported into 
Colombia, and the present memorandum - the,last in the present 
series - will be devoted to that subject, 

Yie shall consider here only the question of control¬ 
ling prices of imports up to',the point of their'first domestic sale 
in Colombia, Beyond this stage, the"problem seems to be a domestic 
one involvi.ng the issues vrhich we have discussed previously, 

t ■ 

Import prices are governed by two distinct sets of 
factors, depending upon the country from which the imports come. 
Imports from the United States are subject to export conurol in that 
country, and the problem is one of utilizing existing control 
mechanisms, coTlaborating with the Office-of-Price Administration to 


l-7dC9-pg. 32 of 71 





-50- 


make them more effective,- and extending the benefits of a controlled 
price to the final consumer in Colombia^ Imports from other, coun¬ 
tries are not, in gen'.-ral, subject to price control at the source, 
and therefore a prior question arises concerning the propriety of 
efforts to regulate prices Colombian buyers may pay abroado Further¬ 
more, some identical imports are rcc;:ived from both the United States 
and other countries, and methods worked out for one of these cases 
may bo inapplicable, or undesirable when both are corabinedo 

In light of these factors, this memorandum will be 
developed according to the follovdng outlines 

I - Gene r al Considerations„ 

A Information already available, 

, B Advantages of beginning price control with 
imports, 

C Problems of import nrice control, 

B Criteria for selecuing import prices to 
control 0 

II - Imports from United States , 

A Control mechanisms now functioning in 
Colombia and the United Statesc 
B Factors making for ease of administration in 
regulating the prices of imports from the 
.. United States, 

• C A suggested plan of control* 

III - I mports from countries other than the United . , 
State 5-0 

A - Pticuliar. Problems. 

B - Suggested solutions, • ' 

IV - Imports, of. one,..commodity .from both the United 
States and other :countries ^ 

A - Peculiar Problems« 

B - Possible solutions. 


l- 7309 -pg. 53 of 71 











-51- 


■ i I ~ Gentira l C o nv^ ido ratio n s 

A.- Information already available: 

1 - Colombian consular invoices (original 
and four copies) for each shipment - one being kept at the consulate 
abroad^ one sent to the Colombian customs authorities^ one to the 
Comptroller General, one to the; bank or final owner of the goods 
one to the importer's agent„ 


2 - Colombirin import manifest (original 
and six copies) for each shipment - one for the importer^ one for 
the importer's agent, two for tne Comptroller General, one for the 
Hinister of Finance, one for the customs office at the port of 
entr^r, and one for the customs rmrehouse at the port of entryo 


3 ” Summaries of the information contained 
in (2) above published in the ''Anuario del Comercio Exterior'h- 
This source is invaluable for d^ termining the relative importance of 
imports, and recent and probable future changes in their countries 
of origin, . ; . 


4 Commercial irmoice and other papers 
delivered to tht^ buyer or his bank by the sellero 

Since many Colombian customs duties arc on a specific 
(weight, number, volume, length) rather than an ad' ‘'USorcm basis, 
the value of the information furnished bj^ 1, 2, and 3 above is 
altered by the following considerations: 

a “ A spt, cif ic duty gives neither the exporter nor 
the importer any incentive to attempt to alter the true value of 
■the article-in dv;claring it to the customsp.therefore a spudy 
attempting to discover the level of past prices could probably rely 
\‘rith confidence on the figures for articles governed by specific 
duties, valorem duties may lead to attempted under-reportingj 
therofcrc past figures may be somewhat loss reliable, 

b - If price control is introduced on a cost-plus 
basis (margin method), the existence of specific duties makes a 
chock on valuation extrerae:ly difficult. Customs authorities have 
no interest in the declared value of products if these products pay 
duty.on the basis of their vfcight or other physical characteristics. 

Therefore, the Price Intervontor must either find some means of 

✓ ■ • 

checking values recorded on customs entries, or work out an entiroly 
new system for obtaining accurate information. Since ^d va^Tcm 
duties involvt,; higlm r customs paym-'nts as df.'clarod values increase, 
some automatic check on over-reporting already exists in this case. 






i-736y~pg, 54 of 7i 





-52^ 


Furthermore, customs officers are more likely to scrutinize all 
declared values if the duty is ad valorem,., and therefore the 
check of a higher duty is reinforced ly the further check of a 
closer investigationo 9 

B - Adv ant a ges of beginning price control with 

jmporbSo 

1 - Any price control must pass through a period 
of trial-and-error before it reaches peak efficiency’’. If domestic 
manufacturers or agriculturalists are s'ubjected to inevitable delays 
and suffer from unavoidable mistakes, the resistance to price con¬ 
trol is likely to grcvi; if part of the burden falls on foreign ex¬ 
porters^ the domestic discontent idll tend to be lessened, 

2 - Domestic transactions are constant in most 
articles. Every day hundreds or thousa.nds of sales are made in every 
large toYm in the country. Impci’tsp on the other hand^ arrive at 
relatively feiY ports of entry?-' they are handled by a res’cricted -group 
of m^'Tchants; they arrive in large shipments, m’bh long gaps in 
betYTeePo Control of prices at the import level involves control of 
feTiTor sellers, and of sue plies u'hose appearance on the market is 
discontinuous 0 Therefore the proble’m is easier to handle by reason 
of the long gaps between ship-arrivals Yuhich allow plenty of time 
for discussion Y'^dth the trade and for reaching mat'ure decisions, 

3 - Heliable figures on costs of domestic produc¬ 
tion may be difficult or impossible to obtain^. EY?’en if eMsry domes¬ 
tic producer of a controlled article keeps exhaustive accounts, and 
even if these -accounts are kept on an absolutely Yinliorm basis, the 
yob of control requires fairly elaborate cost investigations in 
many cases„ If domestic producers keep their accounts on several 
different bases, or do not keep adequate records at all, t’ne prob¬ 
lem of domestic price control becoiiKJs m.ore complicated, and the 
possibility of claims of arbitrary action increases. 

Imports, on the other hand, haY"3 one cost Miich 
is capab?.e of rigidly objective determination ’dthout recourse to 
accounting subleties-the landed cost of the article at the Colombian 
port of entryr. Furtherm.ore, certain elements in this cost can be 
defined so as to eliminate evasions of control. This is particularly 
true of insurance and freight. Finally, even though valuation of 
inventories on hand -when the regulation becomes effective may be 
difficult, this problem is Qne Yvhich necessarily disappears as price 
control continues in operation. If costs of additions to inventory 
are clearly recorded, and if sales of the article are constantly 
taking place, the indefiniteness as to costs resulting from old 
inventories yyIII gradually disappearo ' ' ' 


J-— 7.;j69~pg • 


^5 of 71 



- 53 - 


i; - Acute shipping reductions have resulted in 
severe import shortages. This has meant extreme price increases - probably 
lar greater^ in general^ than increases in th.e prices of Colombian-pro¬ 
duced goods. Thus price regulation of imports can achieve certain immediate 
and marked price reductions v/ithout giving sellers any .legitimiate grievance 
against the Price Interventor 

i - Lany imports are sold to Colom.bian manufacturers 
and undustrialists wlio use them to produce articles foi’ the Colombian 
mxarket. If price control is able to reduce the costs of these im.ports to 
sore extent^ tv:o results may be anticipated.; 

a - Colombian producers will discover that price con¬ 
trol may operate to the.ir imhediate advantag e, as vrell as to a restriction 
on» their activities. Therefore they may be- more Yvallirg to enter into 
voluntary agreem.ents with the Price Interventor - such as^ for example^ 
an agreem^ent not to raise prices without first discussing the matter with 
the irterventor - and to accept suc;i caipulsory control as may be necessary. 

b - Insofar as higher costs of im.ported rav/ materials^ 
etc. have resulted in higher prices of finished products of Colombian 
production, lower.ing these costs ought to operate to som*e extent to reduce 


prices. 


This regulation wa; 


6 - The United Ctates is now regulating export.prices. 


)ased on 


the follo’Ting main considerations 


a - That American sellers should not be allowed to im¬ 
poverish other countries who depend on the United States for supplies of 
mary articles which the 2 '' have not the facilities to produce at home and 
v/'hich they literally carnot obtain elsewliere. 

b - That high export prices should not be permitted, 
since these prices might drain off into export channels goods needed for 
cor sumption in the United States. 


c - That .high e.xport Drices v/culd lead to excessive 
profits for exporters, with resultant ill-feeling among domestic sellers 
operating under rigid price controls. 

Point (b) has become largely i.noperativ^e both because of 
direct distribution controls over many products (e. g., metals) by the bar 
Production board, a.nd because of the extreme shortage of shipping, which 
has set rigid physical lim.its on tlie possible vo3.ume of exportable goods. 
This shipping shortage has also operated to lessen the significance of 
point (c). E:qDorters have suffered an acute decline in sales volu:'.ie and 
as a result their unit costs of sale have increased greatly. Furthermore, 
exporters particularly have had to bear the burden of costly/ and tim.e- 
consuming government controls^ practically every v-ar-tirse control has 
affected them, directly in such a way as to increase their costs of doing 


ousiness. 


Points (b) and (c) have therefore declined in importance; 
and at tl;e same time, many critics point out that holding down the prices 

l~7p69- pL. , 36 of 7i 


ill - 


of exports frox the United States has not solved the problem for most 
foreign consumers who are being charged fantastic prices for United 
States products. Export cor^-rol^ they saj, has simply deprived the 


ibiiurican exocrter of a large profit and pr.^sented it to foreign sellers. 


At the sae- 


time 5 c.r^ 


:tic shipping r -strictions have led to the accumula- 


Lar balaioces in 


o+hor countries,' ■va.th lujsultant in- 


Therefore, th 


iontrol in the Unitoc. State 


argumer.t 

would 


tion of Gnoriuous clolU 

f].ation of all prices in theso countrie; 
concludes^ removal of export price cent; 
cause no additional hardship to forei.gn buyers^ wlio are paying excessive 
prices at prosont? it would even r.-dnce generally inflated prices in 
other countri-?s by loisering excessiv.. do]Aar balances. 


There is no reason 


to 


. -."I 


ievc that these considerations 


in the 


United 


forcsI'ad.oT: the discontinuanco of export price control 
States - criticism has neither been loud nor very persistent. But 

the argument as outllnod has seme logic. It has at least operated to 
modify the application of really thorourhgoj.ng export price control in 
the United States. Control of final prices for importv^cl goods ir tho 
country of import would C;.rtainly aid 'Qnifv..d Stat-^s export price control 
and' refute a corsidorablo amount of tho criticism directed against it. 


C - Problems. 


This section mil not be developed in' ful’ 


detail 5 


since 


many p.roblems can better bo discussed under II^ III^ and IV below. 




oe aeL.rrTn.1 
import 


'CC 


('.tion 


1 - Lcgitirmtc elements in landed cost should first 
for import■„d comjnodities in general b .iorG ann/ specific 
is taken. Such determination both proves to ijiiportcrs 


Interventor knows what he is doinpg and cstabli.shcs a fram.cwork 


tliat ti' 

into which th . peculiarities of individual commodities can be fitted. 
An illustrat 


iv.,.^ ci-lthough iiot cxliaustivep list of thes:j possible cost 


^lemoi'.ts is tliv. follovring 


a 

b 

c 

d 

e 


f 


1 

o 

k 

1 

m 

n 


Dor.'wStic price in country of origin. 

Export packing. 

Colombian corsular foes. 

Freight forwarders’ f cs^ if any. 

Demurrage charges incurred ly tiw exporter 
b..foro the goods arc loaded on board ship. 
Export '..r' s premium. 

Charge of exporter^ foreign bank^ or 
dor:LGstic bank for extension of credit. 
Lasurance - marine and war risk. 

Oceaia frv.ight. 

Customs duties. 

Unloading and other sUeV^doring charg^.',s. 
Colombian Taarchousing charg'.;S. 

Colombian stamp tax for import manifest. 
Import liconso foo. 


2 - Having 

legitimatcj attention must ncjct 
separate qu..stions arise h...rG; 
represent wEat he has actually 


dv^tenainod the kinds of costs which are 
bo centered on allowablo am.ounts. Tvro 
First, do tho importer's allcrcd costs 
paid? Socord, vf..:rc these payments reasonbble 


l-7d’op~pg. A7 of 7i 




and legitimato? 


- 55 - 


Those questions vrill be considered with reference to the 
list in No. 1 above. 


a - Domestic price in country of origin. 


If the exporter's country controls the price of the 
article export^d^ the maximum price for the product in the country of 
origin should bo obtained. This is true regardless of whether the ex¬ 
porting coiontry controls export prices. An inquiry should be sent to 
Colombian embassies and consulates abroad;, asking them to forward in¬ 
formation a.s to the existence of price control in the countries whore 
thcr^^ are stationed, and as to the status of price control on a list of 
articles dispatched to them. This list should be made, up from the 
latest aveiilablo Colombian im.port statistics, pnd should be compiled on 
a country-by-country basis to ?hicludc all of the important exports sent 
by each countrv to Colombia. ' 


If possible, further inquir^.^ should be made as to 
whether tiic maximum price s^t has any relation to prevailing market 
prices. The maximum prices Sut by the United States on y/ooI, for ex¬ 
ample, are far above actual selling prices. 

If the maximum prices set in the comitrj/' of origin are 
in absolute terms - that is, if they are stated in terms of dollars 
and cents, pounds, shilling, and pence, etc. - copies of the price 
regulations should be sent to Bogota. 

I 

If -no i.iaximum prices exist in the country of origin, or 
if they are calculated on the basis of some formula vdiich precludes 
determination of their proper level in 'Bogota, customs declarations re¬ 
duced to f.o.b. terirs arc probably the only solution, unless consular 
officers can be- prevailed on to keep the Intc-rventor informed as to 
market prices in foreign countries. 


In. anv case, consular offiC'^rs should be instructed that 

fc/ 7 

a copy of the'invoice Tfhich the seller transmits to the buyer should be 
made a condition for the issuance of a consular invoice. This v.ull pro¬ 
vide the Intervuitor with continuing information as to the prices paid 
by Colombian importers, and, if the article involve® is controlled, it 
v/ill provide a check on th... accuracy of importers’ statements and the 
adequacy of prices fixed. 


b - Eiaport packing. If this item is important ‘ in 
the fir.al delivered cost of the product, the question of Y/hethcr some 
goods arc too luxuriously packed might b,. taken up with im.porters. In 
any case, th^ intervontor should have a fair general idea as to vdiat con¬ 
stitutes a reasonable charge for this service. 


c - Colombian consular fees. This- item should be 
easy to check. Since the same applies to customs duties, Colombian 
warehousing charges, Colombian import m.anifcst stamp tax, and iiaport 
liCvjn.Svj fee, those cost elements ivill not be discussed separately. 


1-7369-rpg- io of 71 



d ~ Freight fonTarding fees are not likely to bo 
Lr.portant enough to warrant separate investifation: A general idea as 
to their lovcl is desirable. 

0 - Demurrage charges incurred the exporter. 

Since prcsait ship mov.^ments are chaotic^ this clomuiit maj^ bo impor¬ 
tant. It is certainly hard to control, rrobably the only, possible 
device is to gain some idv^-a from consuls in each important port of the 
naturo and average amount of those charges;, and. require the exporter 
on his invoice or separately to report demurrage fees to the consul' 
for transmission to the Int^^rvcntor. This report should include the 
length of time for v/hich demurrage is chargod, both as a check against 
the average rate furnished by th»:. consul and as a means of discovering 
viethcr cxportc^rs arc claiming excessive demurrage times. 

f - Ej^porter'-s premium. For United States export- 
■-.rs^ this should...brequired as a separate item on tiie invoice. For 
other countries, importers should be asked what they consider a fair 
export premium to be, and this information can be checkced by comparing 
invoice copiv.s recoiv d against maximum price regulations sent in by. 
consuls. • ■ 

g - Intorost, etc. charges. Under present condi- 
ti.ons, with cash balances long and .goods short, it may b^^ questionable 
national policy as lecll as bad price control to permit any addition to 
costs as an allowaricc for int...rest. At most, a rcasona-blc comr'Orcial 
rate for good 'trade paper should be determined after consultation n.dth 
leading bankers v/ho arc engaged, in financing forjign trade transactions, 
and a m-aximum period of usanco - .g., 60 days, 90 days - should be 

d^dermined by the sam>.. method. L.ultiplying the maximum'rate by the' 
maximum period should d.jtornin-. the maximum allowaible interest cost. 

This need rot bo allovoed on c.esh sales, etc., but it should -provide a 
us. ful standard of ruf'^^renco. 

h - Insurance - marine- and war risk. 

i - l.'arino insurance is not likely to be a very 
important v^loment in the landed cost of goods, and standard quotations 
should b>^ easy to obtain from anj'” marine insurance company. 


ii - VOar risk insurance, hov.reaor, is both high 


and like.ly to fluctuate froj'.i time to timiO. The Interventor should keep 
posted as to developments in this field. Determination of a reasonable 
rate- for rear risk insurance on cargo sliould be v-r^'" simple. Unfortunate 
ly, the- problem does- not ^nd hero - since this rate is high and virill ■ 
probabl;/ continue to bo so, the base upon which the rate is. calculated 
should b^, -carefully defined. Landed cost of goods may \eary hy or 
mere depending or v.hc-ther the Ccargg) is ensured on its f.a.s. lalue, or 
on its. c.i.f. value with an extra allow'-ancc for profit on money tied up 
in th;. shipment. The custom of tix import trade should be investigated 
with r-,gard to each major commodity, and the follov/ing questions asked: 
lino customarily pays the in-surance? Upon what basis is tire insured 



- 5^7 - 

value calculated? ‘'.Vill irsurcaico coi.ipcanics perreit any vi«.luation uhich 
tli insured cares to declare^ or do they scrutinize these valuations 
closely? 

Time may b>_- saved by discussing the matter first vdth 
leading rar-risk insur.'.rs. 

■ i - V.ith ocean freight, as mth insurance, the prob¬ 

lem is at present simolifitjd by the decline in the number of possible 
ports of departure for ships arriving in Colombia. Thus information 
need b.. gathered as to freight (a.nd uar-risk insurance) rc.tes on only a 
fm.- main routes. Fr^dghb re to information sliould bo easily obtainable 
from any magor shipping company^ variations ir ratos aro also easy to 
v.'atch. 

k - Unloading, otc. charges. This information 
should bo easily obtaina.blc; at ports of entry. 


The information thus gatiiurod has value in the follomng 


rosoects: 


First, it permits a preliminary opinion to be made 
as to the need for control of some products because of their unjustified 
ac\anco in pr:.cc and gives some indication of the level at nhich control 
is most .necessary. For th^so purposes, detailed information is unnecessary. 

Second, it aids in forming a. reasonable judgmaet as 
to the prop'^.r method or toclmicuG of price control to apply to imports 
v.iiich must b^. controlled^ 

Third, if a freeze or specific price is docidod on, 
thi.s research is essential in determining the date of the freeze or the 
lev-l of thv. specific price chosen. 

■ ■ Fourth, r’..gardl.:.'ss of the pricing nu.thod chosen, but 

particularly if margin control is decided on, such information is a poT;or- 
ful aid to. nforcement. 


C ..rt-ain oth^r of this information adll bp discussed in 
connection vdth points II, III, and IVbelou. 

3 - Once the I'mportcrs’ costs are verified in general 
or in detail, tin.- cpiostion of allon-ablo profit emerges. This question 
is similar to those discussed in .mere- general memora-nda on pidco control; 
suffice it to say here that uhe import field may provo particularly 
difficult bv.causc here more than clsevhcre the average merchant has suf¬ 
fered a drastic decline in ta... vol^Jiio of his business. (See llcxt Steps 
on Frice Control - II - pages 5-6). 

h - A ver'-’- complex situation exists if the importing 
is done b}^ a foreign compar-y vaiich handles its Colombian business through 
agents. Mere the original pr.-ico charged by the seller to the buyer loses 
its ■ importance as a base upon vhich to build price control; this ori;;dnal 


1 - 7369 -pS. be of 71 






- ^8 - 


'•price” may not even be a matter of record^ and since the "seller” re¬ 


tains title to the product metil after its 'importation^ such a "price” 
is almost meajiingless, even if it can be obtained. Ideally^ the solu¬ 
tion T/ould b^^ to ascertain the- price charged by the. foruipn principa.1 to 
custoamrs in his domestic rr-arket and using this as a base^ to calculate 
a fair price for Colombia. I'lctually, such information may be difficult 
or impossible to obtain. A second solution^ practical in somiC cases, 
is to compare the price charged by sellers of the identical article in 
the foreign inarket, plus cost and profit mnrk-ups allovfod Colombian 
im.portors, u'-ith thv.'. selling price of the foreign company. This solution 
is obviously restrict...d by the fact that many products, especially 


specialti'C 


)tc., have no recognizable duplicates^ 


branded products^ 

If the seller is subject to maecimum prices in his OY/n domestic market, 
the problem is fairly simple,- these maximum prices should bo obtained 
r:nd used as a base for arriving a.t the Colombian selling price. If none 
of these methods is applicable, a base-date "freeze” plus price increases 
if certain specified costs incr..ase may be the only method of -dealing 
Kith the problem. 


The proportion of sales of a. product handled through 
domestic im^port^rs and agents of foreign companies should bo established 
before a resolution is issued. If th-j pc.rcontage is v.^ry small, it may 
seem mse to prohibit the agenc^.'^ t^-'^pe of sale altogether, in ord-.r to 


pr^-vent .-vasion; alt.irnativcly it might be proieidod that bona 


fide a 


gents 


may retain th-.ir existing affiliations, but that they cannot take on 
ag.-jneios for any n.ra products if they sell directly in the Colombian 
market out of their ov.n stocks, nor can nv_K coi'panies appoint agents in 


Colombia for the products controlled. Thu price vrould then be 
thu basis of the records of "independent” Colombian importers. 


s et on 


If agents constitutu the usual chann.?l tlirough which 
the goods ar. sold, and deliv.n'’ed in Colombia, the bust method would seem 


to be to ascertain hoY,'' much their prices had incr 


eased over 


the last 


eighteen months or ti/o v-ears. If thes.^ increases were small or non- 
existent, their prices could be frozen as of the presentj if they Yrcre 
largo, they should b-.; compared with increases in war-risk insurance, 
ocean freight, and other measurable factors. Prices could then be 
frozen as of some past date plus a reasonable alloY.-ancc for cost increases 
since tliat timo. 

The foregoing remarks about agents rufer to the type 
Y.bo impnrt goods cither in thu naniu of th... for-eign company or in their 
oian namu as agents. The sa.mc problem does not arise if the "agent” 
sim^ply takes orders to be filled by indep.'.ndont domestic importers, or 
if he spwnds his time directing adv.,rtising and pursonal contact campaigns 
to incr.;ase the us-^ of the product or products he represents. 

D - Criteria for s.,.lecting import prices to Control. 


] - The most obvious criterion, of course, is 


'valu... of imports of the product. Since baport statistics for past years 
may bu compl.„tcly irr.leva.nt to thu present situation because of foreign 


l-7j69-pg. bi of 71 





- 59 - 


-y 


r-' 1 . 

' V < 


supply or shipping scarcities, or bocrus., of the subsocuent grov.i^h of a 
Coloinoian dor^stic industry, th-^s statistics should be as up-to-date as 
possible. They should b^- supplemented by discussions ndth the Superintend- 
ency of Imports and rdth importorc, in order to get a general idea as to 
the probable futur.: volume of imports of the products considered. The 
first stv^p should be to d.rav up a list of products ^hosc importation has 


been important in the recent past, and ,to ask qualified authorities to 


strike out those no longer important, and to add other products, if any, 
uiiosc large-scale importation is just beginning. 


2 - Commercial practices, do not necessarily 
correspond to customs' classifications. The foregoing list must be m.odi- 
fiod on tho basis of two additional cor,sid:-.rations: 


a - an^^ import classifications which soom to be 
important arc in fact composed of numerous different products. This is 
particularly true, of course, of miisccllanoous classifications; "Other 
products of tin.: chem.ical industry", "0th,;r rubber products”, etc. It may 
b>. true of classifications v.iiich look quit,..- homogeneous on paper. A talk 
v.dth customs officials or a sample examination of customs records ought to 
be sufficient to weed out tho r.ost het.,rogen_;Ous "major" products. 


b - I.'inor jjroducts r.iay bo so sim.ilar to major ones 
that control of the latt-..r without control of the former would simply 
reverse th.:,ir relative positions, give the public a product it ivants less 
rather than one it vrants mor..., and discredit price control. Fortunately, 
the import statistics arc assumblod on a. basis Y/hich m.akcs the discovery 
of these affili;at.-.d minor products a relatively simple matter. Commoditj^ 
experts in the Intcrvcr.tor's office should also b . usv,.ful in helping to 
d.ot.,.r.miine rdi-at stragalers to include. 


3 -* Essentiality of tlr,. product to national life 


is, of course, as important a criterion a.s it is difficult to dotcrmiinc 


Hero th„ experience of the Supcrintcrdency of Imports should be invaluable. 
Imports can at least be sorted into the obviously essmitial, th^ probably 
Gss..;ntial, and the obviously non-CwSsential in rapid order. This sorting 
wefll spare the Inter venter from ridiciil.' v.iiich might result if for example, 
Scotch whiskey prices ra.rG controlled and essuntial drug prices loft fr^o. 
It Tfill also have the best possible rationale bv'.hind it; importers of 
essentials :.re under present conditions being graintcd a public license to 
carry out a function of grea.t public importance, and the^e should not bo 
allovfod to abuse this licons^j by oixborticnoto charges to necessitous buy¬ 
ers. 


h - EEScntialitj'’ of tlic product to low-incomio 
consum.>-rs is a further criterion Y.iiich should narroY; dovn the list compilwd 
under point (3). Thus textile machirr. ry may be essential to national life, 
but if the prices of textile products arc not controlled and if such con¬ 
trol is not cortcmplatcd, it may bo usol^-ss to try to control prices 
charged for machin,:ry. This problem is simplified by the fact that users 
of machinery, etc., arc miore likely to deal directly with foreign suppliers 
and for that reason are loss likcl,}^ to pay huge profits to a chain of in¬ 


term vjdiaries^ 


. ;■ ■ 


l-7"36S)-pg. 




of 7.L 



A 


■ I 




60 - 


The compilers oi cost of living statistics in the office 
of the Comptroller General rail be able to give valuable inforiaation as 
to items T.liich should on the list of essential imports. 


b - Relative percentag:, increase in prices in the 
last one to three pears is a further important criterion. Thus^ both 
from thu. standpoint of policy and of tactics (tiii- public vill appreciate 
rapid and largo price reductions); the- first product controlled maj’’ veil 
be the product u'hosc price hss risen most. A rough idea of th^,: order of 
priorities according to this criterion be gained by taking import 
figures for the last three or four years and dividing their stated peso 
valu-j for -a’'.eh year by their veight (or othi.'.r physical unit) to arrive 


at a unit"value index. This should uncover some 


of 


This method is unsatisfactoia’’ by itself; hcv 


;ver, 


the vorst increas; 
because; 


moke a unit erico 


a - Grade or quality clio-ng'-.s may have occurred YMch 
increase arrived at by the foregoing calculation 


ntually meaningless. Thus th- av;.nagc price of a tire maiy harm in¬ 


creased greatly; but th- reason may be that the average tire noYj imported 
is much different from the aavra c tire of throe 3 '"oars agO; and the in¬ 


crease ma^/- only rofl-.ct this fact. 


b - Som-:.; of thv'.So incr 


.asGs moA 


lay be, due to unavoidable 


increased costs in the exporting countr^v^j it is probable that the most 
C'Xtrem.G incrjascs hs'vc occurred because the source of supply is entirely 
diff^.r.net fraa vliat it used to bu. In many of thes<- cas-.S; the Price 


Intervontor is povrerlcss to act; and h<-.rC; of cours,^; 


th e- in forma ti on 


gained is not Vs:,ry helpful. 


c - Increased landed cost gives no measure of in- 


cr^as.d cost to the public. Thus th.. forcigia sL.ll..r may have chu'^rged the 
domestic im.portcr a very reasonable price; but profits from that stage 
may have skyrocketed since th^ br.s-..- date vith th-.j result that the public 
is paying d.^arly for the product. 


’7r 


fnatevor* the d.;ficiencies of tb.is method as 
of ascertaining price increases; it at least serves as a basis for determin¬ 
ing ho’r m.ucl'i of the final price increase is duo to conditions in Colombian 
trade and, hena much arises from foreign factors. Thor a. for G; subject to 
qualification as indiccatod abovo; this analysis should be performed for 
the css.antial volume imports. 


A further rough approximation to probable pric.c in¬ 
creases ma^/- bo gained by taking th.,; amount by ■'mhich necessary imports 
have fallen off sincC; saV; 1939• It-lue figures are obviously misl.,ading 
in this connection; physical figures should bo used. Thus the chances of 
an acute price situation <are grt^atcr if imports of an essential product 
ire noi7 only 20;^ of piiat they ue.;rG in 1939 3 than if they are say 80 o-r 90%. 


This .method is satisfactory only if an increase in doiostic manufacture of 


similar or competing goods do-s not occur - the application of the method 
to imports of many textiles uould lead to a meaningless result. Further¬ 


more; it can bo carried to an absurdity in th: 


of products; such as 


certain articles i:]adc of natural silk; vdioso import decline over the period 


has been 100"’^ 


/o. 


i-73e9-pg. 63 of 71 


I 




- 61 - 


A still- further, method for. dot'.'.rmining those price in¬ 
creases is to examine the Comptroller General'.s . cost of li-'h-ng figures 
as exhaustively a.s possible. This should giVe the best possible infer: 
tion^ unfortunately, it-evill probably not-'.give infbrma.tion on every 
.-ssential import. 


Again, trcadc channels msy volunteer information = This 
r.,quires some pcrsonrl knovledgo of the r .liability of the volunteers, but 
■'■•■.'ith this, qualification it v./ill probably throw light on aspects of the 
question r.Tiich c.annot bo illuminated by any other device. 


A list of important imports might be sent thru the Depart¬ 
mental Price Deputies to Departmental governors, local mayors, or local 
chambers of commerce, to get their opinions as to the relative order of 
price increase, together rdth their commxnts. Many of these individuals 
already havo considerable information available oh the subicct, and even 
rough guessv:.s m.aA'" bo valuable, if they are received from, enough sources, 
and then carefully studied. 


This study of cost incrx,s^JS v.dll serve not only to estab¬ 
lish the probablv,. direction of i[:m>xliatc inti.n vent ion; it r.dll also bring 
in a wealth of information vdiich rdll be of great assistaincc in dctermiining 


the. type, 


scope, objectives 5 and probably effocti'vonoss of the control. 


6 - The country of origin of the import may be a determin¬ 
ing factor. Thus im.ports from the United States are mioro easily control- 

h'.. system can be established more 
friction, and is less likely to present the 
public vdth the spectacle of a controlled price vrhich steadily advances. 


lablv.. than imports from Argentina; 
rapidlj^, should laork Ydth les 


criterion. 


7 - The numib^r and trade policy of sellers is another 
Thus if a fm.a sellers exist, particularly if a few sellers 


exist abroacl, informal arrangements 
fairly simple. If these 


and an agreed course of.action may be 
dlcrs publish price lists for their products 
which have ali.dys been recognized as giving the "fair" selling price all 
the way from the factory to the consumer vio buys at retail, this price 
book miay be ta.ken over directly and ev.re^ price in it converted into a 
maximum. 


In’ concluding tliis discussion of criteria, it sliould bo 
pointed out that, each successive- one operates as a separate examiner to 
weed out products passed as eligible for control by other criteria. In 
some cases, of- course, the various criteria may point in different direc¬ 
tions; ( 6 ) and ( 7)5 for -examiplc:., may run counter to the first five. But 
in general th«_ sifting function is the m.ore iiiiportant, and therefore the 


criterion which is easiest to appl^/ should be used first and some products 
dofinitelj'" eliminated before the mxrc difficult .invosti+ 
becoiTic necessary. 


.gat 10 ns c; 


nd analysis 


1-7369-pc* 64 of 7i 


- 62 - 


II - Ii:iport pri ce control - Imports from tho 
United Statcs. 




Control mocho.nisriS norr functioning: 


1 - In Colorabia^ in addition to tho controls exer¬ 
cised as in normal times by the Minister of Financ- through tho Customs 
-organization 5 the Superintendoncy of Imports has considerable poYror in 
determining^ and has complete data concerning all imports from the United 
States to Colombia. As has already been pointed out in the preceding 
discussion^ this organization is an invaluable adjunct to any price con¬ 
trol program. Since its efforts are directed at solving the problems 
cr^jated hj shipping shortage betYfoen Colombia and thiL; United States, its 
rol^ is much more valuable in this particular sotting. 

2 - In the United States: 


a - Tho Board of Economic V/arfara must issue s.n 
export licens.. for every shipment to leave the country. It is our under¬ 
standing that from non on specific licenses m.ust be issued for specific 
shipments, end th>.;roforc the information submitted by the ibmcrican 
exporter must apply to each shipment he proposes to make; ho cc-n no longer 


describe his contemplated activiti>, 
a general licons.. s.) 


In broad terms and in turn, receive 


b - The United Stc.tes Office of Price Administra¬ 
tion has the folloi/ing cor'.trol over export prices of goods leaving tho 
United States: 


i - The i aximLoa Export Price Regulation provides 
that no seller may charge more for an export sale of an article than the 
applicable domestic maximure price (or cost to him, y.-hicliCY^er is loumr), 
plus reasonable additions for export packing, freight forYrarding fees, 
demurrage paid in the United States, consular fees, etc., plus an amount 
not to exceed 12of the average percv.ntago export premium viiich ho 
charged on export sales of the same type in either tho last six m.onths 
of 19i;0 or th.. first period March 1 - April 1^^ 19li2, riiichevcr period 
involved the lov;cr (.xport premium. Thus, if the exporter took an export 
premium of 20>t in the ipliO period and 2^% in the 19 h ‘2 period, his allow- 


abl-. 


-.xport premium under the 


-gulation cannot exceed 1.2^ x 20,^ = 29 %> 


ii - The Office of Price Administration has in 
the past r;.ccived every application for an export license submitted to 
the Board of Economic barfare (these applications contain proposed selling 
prices), h'^s xaxined these applications which seemed tc call for exccs- 
siYw prices, and has rccem.ended that the B-C-rd cf Ec:n::;iic Warfare 
refuse th,.ce Y.'hich a.-'uld net bear in\cstigation. It has alsc compiled 
statistics ’:^n aYwrage, eaxirox'- and minm-eo]-: oxp:rt prcmiui.a charged on 
Cv^rtain c''.tcg. rics '■f gccds, re nth by .month, since tho effective date of 
the expert rcgulati n. It vrculd prcbably examine these pr^miur.is on the 
basis cf experts tc Cclcmbia, if tho request yrcre to bo made. 


has 


suffered in 


The 
the O' 


ystc;' ,f c ntrelling exp rt prices sketched above 
the follnvring deficiencies; as has been 


st from 


±-73b9-P£. 65 of 71 











r 


- 63 - 

ind.icc.toG% this control could not.bo.- too sovoro if the importing countrj 
o::erciscG. no control over final price to the consurmr; th^^reforo the 
exporter dotjnTiin.e'S his oine average premium^ and those dotcrininations arc 
ovGT-rul^^d by denial of an export liccnso only vrhen the requcst'..d premium 
seems obviou sly excessive. Secondly^ no chock has existed to guarajiteo 
that the price proposed on the application for an,export permit mas in 

fact the price charged the consumv.rj the seller still mak^s out his com¬ 

mercial invoice and dispatches it tiirough the usual channels^ ndthout 
further sup or''/i, si on. Thirdly ^ there arc reliable indications that the 
practice of splitting the difference betmeon the declared export price 
and a. price arrived at by informal agreement botvecn buyer and seller has 
occurred^ the legitimacy or prevalence of this practice has been impossible 
to establish in th'. past because of lack of price control in the importing 
country. Fourthly^ the Office of Price Administration has in the past 
been ablo to check on only that part of total United States exports T.iich 

ha\m necessitated specific licenses; vith recent changes in the export 

control mechanismj this particular lacuna should bo .Jiminated. Fifthly^ 
the agLUcy problem is insoluble by such iceans. This last point has 
alroady been discussed. 


In spite of these deficiencies (m.ost of them inherent 
long as prices ar,. not controlled in the importing country^ but capable 
being repaired if such control exists) control of prices on imports 
from the United etatjs should be rela.tivcly simple^ for the reasons given 
beloT': 


of 


B - Factors makinrg for 


of administration in 


ropulating the prices of- imports from the 

United States ' 

1 - The domestic prices cf all goods except ag¬ 

ricultural products hav^ been relatimdy stable in the United States 
.since liarch^ 19^!.2. Since Coloimbia imports relatively small quantities of 
agricultural pi-oducts from the United. States^ this excepticn is probably 
not important for our present discussion. ' Furthermorej although no one 
can hazard a really dogmatic opinion on future prices, it is reasonable tc 
assume that prices v:ill continue at about their present level. Thus the 
problem cf pricing imports from the United States is greatly simplified, 
both from, tl:^; standpoint of gathering information and taking action, by 
th'.; pr^.-scnce of an extrom.oly important stc.ble factor - the price in the 
country of origin. ■ • 

2 - iiany United States prict^ regulations nov 
suecifv suucific do liars-and-cents domestic prices. Lore of these rog- 

c 4 . X cp 

Illations ar.. i.Esu..d every day. 


Thus, not onlv may the base price be 


taken as fix^d^ but also the ..xact amount of this prico nay bo determinod 
simply by obt'iining and rv-adimg a r-uinilation. A request to the Office 
of Frico Adr'iinistraticn to furnish copies cf all cf its existing regula¬ 
tions, divided as betmeen specific price regulations and others, and 
kept up to 'date by the e.iailing of subsequent regulations and revisions, as 
they appear, mould autcmaticall,}/- settle the bas..-price problem uithout 
exhaust!v.> research in the Colombian custoris records for many products. 


i-73b9-pg. 60 oi 


V 









- 614 - 


3 - Extra cjxport cost - freight to United States 
portS;, doiXarragCj v_tc. - arc either not greatly important^ or are r£ittcrs 
of.public recorc. Transportation chrrges r.iiich seen excessive can bo 
checked adth the Int^-rstato Corjucrce Coirjriission by the Colombian Embassy 


i.n 


I ex 


lin/rt on. 


h - Ocean freight and i-var risk insurance rates 
are not likely to \a.ry greatly or rapidly from their present levels^ due 
to the importance of the War Shipping Administration in determining the 
rates in both of these fields. They arc also quite easily calculable for 
any product from any United States port by anyone at all familiar u'ith 
maritime; commercial oracticc. 


3 ~ Thu Export-Import Office .of the Office of Price 
Administration has issued^ and has spent a year in administering an export 
price r..gulotion. The accur,iulatcd experience of tliis office should prove 
helpful, particularly in ansu-ering questions concerning reasonable export 
premiums. If the' Int^^rventer d';sir-..d to' establish maxim.um export prcmiui'f.s 
• nhich Colombian importers leoulc be elleiTod to pay, he could expect both 
helpful advic^ as to a proper l..v.'l for such premiur.i-ar and aid in enforcing 
his rulings. ■ < 


C - A suggested plan, for simple and effective control 
of prices of” inpoi^ from the United States. 


purely purscnal ex- 


The follcTving proposed plan is 
pression cf opinion. It attempts, hcvcver, to outline tasks vrhich it is 
beli-->ved vrill bo undertaken r.lllingly by ..authorities in '.7ashington. It 
also attempts to reduce the burden on the Ericc. Intu.rventor and his staff 
b 3 ^ utilizing existing organizations c,nd information to the utmost practic¬ 
able extent. 


1 - If th-... prod.uct t-o bo imported is covered by a 
specific, dollars-and-cents price regulation in the United States, the 
exporter should submit a copy of the invoice he dispatches to the Colombian 
buyvi^r ydicn he c.pplies for his consular papers. He should note on this 
copy the relcvc.r.t "OPA" doriostic maximum price schedule nur.±>orj he' should 


;.lso itmnize additions to this price, -oith.,r on the invoice or on a, separate 


pap.r, 

origin, 


anc. n. 

-p o ( 


sliould sto.tu clearly the terms of salu - f.o.b. point of 


* 5 


etc. 


2 - If thu prod.uct to bo imported is controlled 
by any othur type cf United. Status pricu regulation, the seller should sub- 
.mit a copy cf his invoice to the buyer y.ath a notation '’examined by the 
Office of Price udm.inistration". This notation mould be made in Washington 
at the same time that the exporter's application for an export license is 
examined by the Board of Economic '.'/arfaru, as peart of an investigation 
prccodure six.ilar to th-t nom practiced. Thu d-tailod form of this in- 
v.estigation, and. the precise popurs mhich the exporter should prusont to 
the consul in order to ruceivo; a consular invoice, should be mork.'.-d out in 
dutail ’..dth the Eioport-Iruport Office of the Office of Price Administration. 


As in the pr...vious casu, the seller should have the 


'7 UiQ—r'lC- AV n f V 








- 65 - 


option of Gubi.iitting both a ccov of t.ic invoice nnd an attached itomizod 
staternent of hor: this invoice price is arrived rt; if he so desires® 

This option lyould achiev^j th<- ncccssrry goa?:. of furnishing the Office of 
frico Administration and the Price Intorvcntor in Bogota ?:ith an itemized 
statement of costs^ v/hilc at i:hc scm.e time it Yfould net force the exporter 
to change his bookkeeping methods in u'taKing out invoices or to disclose 
the amount of his premium to the Colombian buyer. 

3 - The consul vill then foruard the information 
submitted in accordance vith point (l) or (2) to the Price Intcrvontor 
in Bogota, together v/ith the export license number of the sl'iipmcnt® 

This latter information Trill facilitate checking on the shipiriont if further 
investigation seems necessary. 

li - Once the foregoing information is available, 
the Intervmitor can th^n proceed to take such measures as he deems proper. 
If the expert preniiuius charged seora excessive or unduly vo.riablc from case 
to case ho may present thesv- facts tc the Office of Price Adniinistration 
in Washington vrith the roqu>jst that an upov-m limit be set on premiums or 
that certain expert applications be refused in the future unT^ss prcmiuias 
are reduced. He may also appl^r any of the price techniques eiscussed in 
our earlier memorandum (Next Steps in frico Control - III) on tho basis 
of the cost data h^ roc^iT/es. ^is cost experience o.ccumulates, he can re¬ 
vise original regul'-tions, make r-qjresertations to the Superirtendency of 
Imports as to proper minimum shipments for different categories of imports, 
black-list - certain exporters cr importers if they persistently violate 
regulations, etc. 


Ill - Imports from countri 


th.jr than the United- 


States 


A - Peculiar probl ems: 

1 - Tho country cf origin raro h-^.vc no domestic price 
control on tho articles exported te Colombio, In this case, no fixed 
base for-an import price can bvj foimid. fuiy const-ant level of prices ever 
a long period is lik^^ly to be fortuitous, fin attempt to imgulatc prices 
T.rhich Colombian buyers ray iDQ.y abroad may.siriply shut off supplios, unless 
the markot for the proouct is mainly outside cf th^ country of origin and 
other ccuntries are a.lso nntorcsted in holding dovon tho prices thoj^ arc 
forced to pay for the proc-uct. 




■'COuntrY^ of origin ray ha\m domestic price 


control but no export price control. If th... fcTwign market for the 
product is fairly restricted, and. if cthor for..mgn buyers are int^r^sted 
in the price problem, joint action ieay bring r>.;rults. The difficulties of 
indi''/idual action in this field may bo illustrated by an example: Tho • 
British control both the domestic price and doj.iestic allocation of cr<jsylic 
acids, xhich are indispensable for the production of certain plastics, etc. 
They did not originally control the export price of those acids. The 
result T-ras that prices in Britemn tc United States importers r>,ached fan¬ 
tastic levels - as much as throcj tm.ios th^- domestic maximum price. The 
Office cf Frico Acr.iinistration took the matter up mith the British Govern¬ 
ment, xiho cooperated by fiicing a reasonable maximiL'.i price for export sales 


1-7369-pg. fcB of 71 






tc tho United States. The result v.rs that Ter s. six-nonth period all sup¬ 
plies ivent to Brazil and Argentina, because pric^-s to these markets Yrcre 
uncontrolled. Finally, in order to assure United States huporters of any 
supplies at all, prices Vve:.re fixed Ter all export sales. 

In both the eases discussed above, control is diffi¬ 
cult because it nay result in a disappearance of supplies offered to 
Colombian importers. Especially in the case of purchases in a country 
7;"ith no domestic price control, chocking of evasion is also difficult - 
even if the buying-price prcblcra is avoided by introducing a margin 
regulation vdiich aliens the importer 0 : specified amount or percentage 
over his landed costs, the question of chocking the correctness of repjort- 
ed landed costs remains. 


B - Suggested measures for solving these problems 

1 - Regardless of the price control situation in 
the country o.f origin of the article, the invoice rcQuirenent discus-sed 
in connccticn vdth United States experts may operate to furnish informa- 
ticn as to th.; general levol of prices in the supplying country" end to 
check ovasicn by Colojnbian importers. If imports of one single product 
from a single countr^^ are of grea.t importance, a fairly exhaustive 
investigation of th^- market situation in that country may be justified. 


2 - For import.ant products, a study of tlic export 
markot in the country of origin yield valuable information. Thus 
many products are noi7 being oigDorted from Brazil and .irgentina to 
Colombia, Vcn.:zuola, P'.ru, and Cliile. Tho invjstigaticn could be con¬ 
fined to the latest a'/ailable expert trade statistics of the country of 
origin. If it sliould disclose that most of the exports of a particular 
product go to a small group of countries, th.; irnttcr of co-operative 


price control on the product night be taken 
involved. 


i'.dfh the other c cun tries 


3 - Tlic acut .ness of the shipping situation ^ay make 
this proposal imipractical, but it is presented for mhat it is vrorth; some 
articles cf great essortiality nay bo coming in at present froei sources 
'vahcrc prices are not controlled. If their price is a matter of extreme 
importance, it migiit be advisable t-o shift purcliases of these articles 
to the United Stat.-.s and force iiaportcrs tc gc tc other countries for 
articles of less essentiality niiich can be obtained there- The defini¬ 
tion of essortiality used here is p.erhaps slightly different from that Yrhich 
the Superintendency. 01 Imports is rioT; employing. The emphasis is on the 
fact that the product m.ust be available at lev prices. 

li - Subsidies .may be the only m>.:ans of keeping prices 
yd thin bounds. This method should be used yri.th caution, hoYA.ver; if 
the market in the exporting ccurd.ry is a highly speculative cne, the re¬ 
sult of the subsidy mr.y be simply to raise prices at tlu. soijrce to an 
equal degree. Furtherncre, subsidies vrould pr..sumably b.; paid only on 
products of miough Lmportance to justify ccncorn about their prices; as 
a corollary'' of this, subsidies might involve substantia.1 sumo of money. 

In most yrarring countries, ydth half or more cf the national income going 
for y;ar purposes, such substantial amounts arc of no relative conscqucncej 








67 


the puclic has become sc accustomed to astronomical govormiont expenditures 
that even the biggest subsidy seems r.^iativoly trifliiig. Colombia's. pres¬ 
ent budget is at noderato levels, and therefore a subsidy of any substantial 
amount r/ould a.ppear to ta::-pc.yors as a r/attcr of consid.orable relative 
importance. This is particularly?^ true since the beneficiaries cf the sub¬ 
sidy, although in fact they are domestic consumers of the product, might 
bo depicted as being fcrei(:p sellers. Finally, a subsidy plan involves 
considerable paper iTcrk for cveryen^ corcernod, and even the most elaborate 
sa.feguards cannot prevent isolated cases of undeserved subsidy payments. 


5 - Some foreign suppliers may be logitiiVjatcly/' inter-sted 
in continuing to supply the Colombian mar-cot after the pr'-sent a.bncrmal 
situation has disappeared. lie this, case, an announccrmmnt that extromo ad¬ 
vances in prices quoted to Colomfoian importers '.d.ll bo published might 
cause some modL.ratien in exporters’ charges. This is particularly true if 
the exporters fool that price reductions vdll bo carried through to con- 
sumors of the product, and therefore that future gccdmill can result from 
present moderation. 


6 - If none of the fc-regoj.ng methods offers any hope 
of stabilizing or reducing soimc hrport prices, the only?' price control 
possibility is probably a mairgin repulntion specifying percontago or 
absolute amounts to be added to Irndod or ether costs in arriving at a mr.xi- 
mom price. Vi/c have- discussed this price control method in diotail in a 
previous memorandum. 

IV - Imports cf one cormiodity from both the United States 
and other countries. 


A - Peculiar problems; 


1 - The sam-.o article ma.y have time or i. orc different 
import prices depending upon tho country of origin. Furthc-rmiorc, the price 
from one or more countries map' be completely stable, vhorwa 


map’' be subject to violent and utii.a:noctcd. fluctuations. 


others 

rush for the choa.pcr articl.G, 


the price from 
Tno resulting 
nd public mprstificaticn as to the reason 


for the level Sind variations of tho difference 'in price, 
cortrol and mak>j cnfcrccmiont very difficult. 


nay 


discredit pric 


o 


2 - This problem is accentuat-.d if the article Y.dth 
the cheaper landed cost is qualitativelp' superior. This map?' bring strong 
pretests from sellers vhc are forcod to sell at a cheaper price if they 
fool that tho public veill assuno that theirs is an inferior article^ 
ccnvorsolp'', it vrill augimcnt public confusion and accentuate the rush for 
tho bettor article if the quality distincticn is gcncrallp." r'-cognizod. 


B - Fossiblo solutions: 


1 - Importers map' be allcizcd o.ri av^ago mark-up. 


Th-^sc have boon discussod at great length under the 
heading, ’’hargin Control” in the memorandum "Next Steps on rrico Control 
III”. At this point it needs only to bo emphasized that any cf the 


i-7369-pg. 70 of 71 





- 6o " / 

.'.'lucsuros r.icnticncd in tk::t diccussion chciild pr-jfurablj’" nc applied at the 
rnpert Icv^.l or even nhen th^ goods ar... pnrchr.sud i-n th^ir country cf 
origin; adoinistruticr. cf ...labe'rate price plans is not difficult if the 
.administration must deal v.dtli cnly a for: sellers v.hose ope rations can be 
iTiitched without undue inco 2 iV'n:’ioncc| it is almost ir.poEsible if every 
retail seller in th>j country r'.ust be notched ever rliile he executes an 
elaborate plan. This arguient ivS particularly cogent Tv'hcn discussing im¬ 
ports; in this c^'SG, th.. information a'/ailablo at the import level is un¬ 
surpassed^ and thv, tradition of dealing nith the government is so 
vrcll-establishcd that govjrn.u...nt intcrv.-nticn, rat]icn than lack cf it^ 
scc.'.is the normal thing. 


FOOThOT'S 


x^age 2 

o 


- a) Decree u92^ of hay 11^ 19ii3 prooddes for an Advisory board 
to the i'rice Supervisor of four members appointed by the 
gov'rnnent to represent nctiomd manufacturorSj j.mport 


Oierchant s ^ agricu 


Iture and labor. 


Page 11- a) Because of the notin 


of Colcmibian lamp it rras necessary to 


create 


Judgeship odtliin th.- Pri-co Control Office to be 


in oliarge of conducting all investigations and suits for 
violation of price cc; trol regulations. The Judgeship 


) e 

Ttis created ^-irticle V of Decree ;/92C of i..'ay 11^ IfUl* 


Page 59- 3-) 


The Fational Supcrintendcrcy of Imports "’'as created Joy de- 
cre.' 9,339 of February. 13.5 19l;2 and. mas empo\';cred to issue 
Certificates of Peccssitj'- for the importation of goods 
sulg^oct to allocation :?ni the United States^ as T'cll as to 
study import requirements and to distribute stocks of 
scarce imported materials to tlio most cs.'-'cntial industries 


and areas, 
creation of the 
control over 


.'D: addition, tho Superintv-.ndoncyj prior 


.0 the 


s ar.i., 


-CC Control Officep ttis ctiarged vith 
prices of imported products. 


Page 62- a) 


The present polieg 


01 the ForelrT. Economic Administra¬ 
tion^ into nji.cii tho old Board of Ecoromic iarfarc has 
been incorporated, and reergarized, is to issue general 
licenses for commodities not in short supply^ T-iiGncver cir- 
cumstarccs so justify. Restrictions on exports to fifteen 
of the Latin American Republics i.'er^ further cased on 
.January 1^ 19kh by th... announcement from the Foreign 
Econcmic Ad.ministration that applications for licenses to 
export a substantial numb^z-r of corrreoditics need no longer 
be accompanied by tho import recommondatiens formerly 
required und..T tho ”doccrtralizatior” program. 


I-736R- 




7i of 71 










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